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Pros & Cons of 5 Different Exit Strategies


The most successful entrepreneurs are the ones who plan ahead. If you were opening a bank account, would you dump your money in, without knowing how you could take it back out when you needed it? Of course not! So why would you begin investing in a business that doesn’t have a carefully planned exit strategy? Here are five of the most common ways people go about leaving the businesses they’ve created.

 

Take The Money And Run.

Many small business owners, who are in business for the lifestyle it provides, just take generous sums of money out during their tenure at the company, rewarding themselves with giant salaries, bonuses, and when it’s time to walk away, they just retire and live off their investments.

 

Pros: You get to enjoy generous sums of money sooner, rather than later. You can just walk whenever.
Cons: You may pay a lot more in taxes. You could wind up spending more than saving for your future. 

 

You Liquidate.

Liquidation is usually reserved for companies that can’t go on to survive without you. Assets are quickly disposed of to pay off creditors and any meager profits are divided among the shareholders.

 

Pros: There is no worrying about transfer of power or negotiating price. It’s just over and done with.
Cons: It feels terrible to see your clients, reputation and entire business flush down the toilet.

 

Find A Buyer.

If you feel you’ve really built something special, but just can’t keep running the whole show yourself, then you may want to find an interested buyer who understands your vision and who can carry on the legacy.

 

Pros: Your business can live another day and selling to someone you know can be a generous gift.
Cons: You may find it hard to walk away because you’re still emotionally attached to the business.

 

Find An Acquirer.

In an acquisition, another business buys you out. Many companies are able to sell for big bucks this way. You’ll want to find a buyer who is looking to expand by adding your products or services to their offerings.

 

Pros: You can command a higher price and even get multiple acquirers fired up in a bidding war.
Cons: You may not have a good business for merging. Mergers can sometimes destroy corporate culture.   

 

Make An IPO.

Of the millions of companies in the US, only about 7,000 are public – and most of these were spun out from existing companies. Although, you may be able to spend money to make money if you’re good.  

 

Pros: You’ll have stocks worth millions and you’ll be featured in national magazines.
Cons: IPOs are very rare. You’ll spend a lot of time and money to make it happen.

At the end of the day, choosing your exit strategy is a very personal decision. The people who love their companies the most usually want to pass the business down to an heir or trusted partner, in hopes that the culture, vision and success can be maintained over the years. On the other hand, business owners who are stressed out and need to cut and run usually prefer to liquidate. Profitable ventures that have run their course for you, personally, but still hold value are good candidates for mergers, acquisitions, IPOs, or selling to qualified buyers. Then there are people who have always lived the lives they wanted; they generally groom someone within the company to take over in their absence and just retire when the song and dance is over.

 

 

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Resources:
Entrepreneur: Exit Strategies for Your Business
Entrepreneurship.org: Choosing Your Exit Strategy


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