10 Exit Strategy Hacks: A Cheat Sheet for Business Owners
By: Brett Pittsenbargar
My name is Brett Pittsenbargar. As an investor at Growth Point Holdings/Senior Income Investing, many people ask me about small business dealings. One common question I get is: "How to sell my small business in the most effective way?" To do this successfully, you must handle the process strategically to liquidate or reduce your stake, limit your losses, and hopefully make a significant profit.
Whatever your reasons are for wanting to plan an exit strategy, there are many aspects to consider. Here are 10 exit planning hacks to help you streamline the process:
Sometimes, enough is enough. One exit strategy that many people overlook is simply closing your business’s doors. Any profits from your assets need to be paid back to creditors, but you won’t have to deal with negotiations.
2) Liquidation over Time
When you liquidate over time, that means that you take out your profits over time rather than re-invest them into your business. You can do this by taking out dividends or hefty salaries. One benefit of this method is that you can improve your lifestyle since you won’t be spending money to expand your business.
3) Selling to a Buyer that You Know
People often get attached to their businesses, which makes it difficult to call it quits. If you transfer ownership to someone that you know personally, they are more likely to uphold the values and practices on which you founded your business.
The upside of the acquisition strategy is that if you choose the right acquirer and convince them that your business has a high value, you’re golden.
5) Make It Self-Sufficient
If you are in a stable market and your business is profiting steadily, use that cash to pay off your investors. From there, find a capable person to run the business and use all of the cash that remains to aid in your next venture. This way, you are still the owner but you don’t have as many obligations.
Merging is great if there is another company with skills that complement yours. A merger allows you to save resources and increase revenue together.
7) Sell Your Stake
If you aren’t the sole proprietor of your business, you can simply sell your stake to one of your business partners or an interested investor. You can see a detailed slide deck on business valuation here.
8) Initial Public Offering (IPO)
Since only about 7,000 of U.S. companies are public, IPOs are rare, but it can be very profitable if the conditions are right. On the downside, an IPO may mean backlash from analysts and stockholders.
9) Management Buyout
This is similar to the point about selling to someone that you know. By selling the business to your employees, you can be confident that the people you are selling to know how to run the business.
No one wants to file for bankruptcy because of the seized assets and the effect it has on your credit. However, bankruptcy is a viable option as a last resort. When you file for bankruptcy, you won’t be held responsible for your debts.
When structuring the deal, buyers and sellers need to find the best arrangement to maximize their returns and reduce the risks. Buyers, for instance, must perform due diligence to assess whether or not the business is profitable and that no existing liabilities can derail his management.
Sellers, on the other hand, must learn how to prepare well for deal by structuring the deal properly. This involves looking into factors such as business structure, taxes, financing and plans after the sale among others.
To better improve the outcome of the deal, finding the correct value of the business is critical. We work with entrepreneurs to achieve remarkable results, whether that’s exponential growth or an exit event. You can get a free business evaluation score with our Value Builder System.
Brett Pittsenbargar is a savvy business investor and turnaround strategist dedicated to assisting business owners reach their objective at every growth phase. With a background in business development and investment experience, Pittsenbargar understands that business is much more than written contracts, it is about the people working every day in the business that matter most for small and medium sized enterprises generating $1-20 million in revenue annually. He invests in, mergers and acquisitions, growth partnerships, cash out purchases and adding shareholder value.
Consult with a seasoned business investor that has decades of experience helping small and mid-sized businesses. A business strategist who can work directly with you in developing an exit strategy plans, partnering growth partnership, building shareholder value and organizing mergers is critical for your business. Contact Growth Point Holdings today to arrange a one-on-one consultation with a dedicated business strategist to start building a synergistic long-term business relationship together.
Disclaimer: This article is intended to give you general business information, not to provide specific legal or financial advice. Be sure to consult your attorney, accountant, and financial professionals for any specific questions relating to your business.