Five exit strategies for business owners

In the previous article, we highlighted the importance of exit planning for business owners. In this article, we discuss five different exit strategies for business owners.

Exit strategies for business owners

You need to look at your objectives to determine the best exit strategy that will create the most value for you and your business. Below we have highlighted the five most common exit strategies for business owners.

1. Liquidation

With this strategy, you effectively close down your business and sell all of your assets to gain as much money back as possible. This approach is the least favourable amongst exit strategies as it generates the lowest return on investment. This might be more suited to asset-based businesses.

2. Family Sale

For many business owners, the continuation of their legacy is highly appealing. If a member of your family wants to take over the reins and purchase your business, you can always sell it to them.

3. Mergers & Acquisitions (M&A)

In the case of a merger transaction, you merge with another company and become a new single entity. Here, although you merge with another company you may still keep a position within the new business. In an acquisition transaction, you are wholly acquired by a larger business. In this case, you essentially agree a deal to sell all of your shares and assets to the new owners providing you meet the final valuation targets over a set time period i.e. the earnout period. This could be 12,18 or 24 months, where you will still be a part of the business and ensure you continue to hit your financial targets, the valuation is based on. Once you have met these targets at the end of this time period you will receive your earnout and exit the business.

4. Management Buyout (MBO) or Management Buy-in (MBI)

By selling it to your team, you are leaving the business in capable hands as they are familiar with the day-to-day running of the business. The management team might decide they have the capability to lead the business or they may choose to bring in a new leader.

5. Initial public offering (IPO)

An IPO is a public offering where you sell the shares of your company. Although this process can be profitable, the process takes time and is costly. If you are looking for a quick business exit you may want to consider another option.

It is important to note that people often confuse exit planning and succession planning. Although succession planning is a part of exit planning they mean different things. Succession planning is not limited to a business owner only. Succession planning is applied across key roles within the company.

In our next article in this series, we will be discussing the 4 critical success factors for exit planning.