It might be something you are not thinking about yet- a company exit. But there is a merely high chance that you will face this situation at some point too, and a good start is half the job.

Earlier this week, Emma Koeze discussed when you should start planning an exit, and made you familiar with the benefits of proper exit planning. However, there is not one single way to leave your company, and so today we will discuss 4 common exit strategies.

Liquidation

Sometimes, enough is enough. Closing the business doors is an often-overlooked option, but certainly a realistic one. Of course, nobody starts a business with the goal of closing it someday, but it happens all the time. An advantage of this exit strategy is that you don’t have to think about your successors and who will control you business in the future.

On the other hand, you are throwing something away that you’ve been working on for a very, very long time. You’ve build up business relations, a reputation, a customer base and in the case of liquidation, this will be all lost, which is quite a shame. If you find a successor, he or she can continue with all of this.

Selling to an insider

If you don’t want to close your beloved company, an option is to sell it to somebody who is just as passionate about it as you are, for example an employee, a business partner or a family member. A common practice is that the buyer pays off the amount of money over time. This creates a win-win for both parties, as you get more money than if you would have closed the business, and the buyer can earn his way into owning a business.

A clear pro of this strategy is that you are close with the buyer, which gives you more certainty that your businesses will end up in good hands. Moreover, it’s likely that the buyer will preserve what you find important about the business. At the same time, there is also a huge risk involved when selling your business to a friend. You might be too friendly, and leave money on the table, or when you sell your business to a family member, the line between work and private might fade.Your business might cause family conflicts, and that’s the last thing you want. Selling a business is a formal procedure, and should somewhat remain formal, as there are many stakes, and a lot of money involved.

Strategic acquisition

A strategic acquisition is probably the most common exit strategy, as you basically find a firm that is willing to buy yours and try to maximize the selling price. Especially when your business has strategic value to the buyer, it might be willing to pay more than the actual worth of your business. Potential synergies are an important determinant for an acquisition, and so the perceived value of your firm may differ significantly per buyer. If you’re pursuing this exit strategy, the negotiation process is a crucial aspect, and it can be difficult to defend your valuation and stick with your opinion.

An acquisition might do harm to your company when there is a bad fit, due to different cultures or objectives from within. This can be extremely dangerous for the existence of your company, as it may lead to self-destruction.

A big difference between selling your business to an insider and a strategic buyer is that in the latter, less or no feelings and relations are involved. You are less likely to leave money on the table because you like the buyer so much, and the acquisition process will be more formal. On the other hand, you have less certainty that the core values of your business will maintain.

IPO

We will discuss this option shortly, as it belongs to this list, but for many small business owners this might be not a realistic option.

Yearly, only a few companies manage to do a successful IPO, as it is super expensive and it requires endless documentation. Moreover, you have to comply with all kind of requirements, for example the Sarbanes-Oxley requirements in the US.

But, if your business is backed by professional investors who have multiple experiences with successful IPOs, this strategy might work out for you.

Whether you are selling your business to your business partner, or to a strategic buyer, everyone wants to know what your business is worth. This is pivotal to understand where your business is standing, and to give the future owners of your business where your company is going. A successful exit planning starts with the valuation of your company, as it provides insights in how your business is developing. This allows you to make proper assumptions on the future and undertake the right action at the right time.