Small Business Exit Strategy Example – By definition, a real estate exit strategy is a way for investors to profit from the subject property. While there are many strategies that can be used, each aims to facilitate a timely and profitable transaction. In essence, they are an advance consideration of what to do with the property. Determining the right real estate exit strategy will not only give investors a plan of action, but will also reduce future risks.
Assuming you find a property that meets your criteria, there are several strategies to consider. Two of the most popular real estate exit strategies are rehabs and foreclosures. As an investor, you are probably familiar with these terms. However, understanding their importance and the intricacies that accompany them will ultimately show how successful you can be in your real estate endeavors.
Small Business Exit Strategy Example
To help you better understand the process involved in these real estate exit strategies, we’ve provided a quick snapshot of what’s involved.
Business Plan Template For Startups And Small Businesses 
Simply put, a wholesale deal acts as an intermediary between the seller and the end buyer to the investor. Ideally, the investor will be able to sell the property quickly for a respectable profit margin. There are two ways an investor can sell: they can sell or “assign” their purchase agreement to the ultimate buyer, or they can actually close on the property and immediately sell the property to another investor. In the form of “double closure” ..”
Rehabbing allows for the highest profit margins, as it allows the investor to sell the subject property at full market value. Rehab involves buying a home, renovating it, and selling it for more than the original investment cost (purchase price plus renovation costs). Kisan Patel CEO of M&A Sciences | Accelerate M&A success for corporate development teams with learning and technology solutions
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A survey of business owners conducted by the Exit Planning Institute showed that 2 out of 10 businesses listed for sale eventually close the deal, and nearly half of those end after the end of a significant concession offered by the seller.
Starting A Business: A Step By Step Guide
Business owners should think about exit planning before looking for potential buyers. The tools provided by Dealroom can be an invaluable asset to any business owner looking to develop an exit strategy.
By working with a team of professional advisors, accountants, lawyers and brokers, you can ensure that the proper documents are in place to exit the business when the time comes.
In this article, we talk about creating a business exit plan and how to create one for your business.
An investor’s exit strategy is similar to a business’s exit strategy. However, investors are looking for financial return when they exit the company. An investor always has a list of potential acquisitions, as well as a time frame for when their investment will be made. In this type of situation there is always an exit multiple in mind (ie multiple of EBITDA or multiple of the original investment made in the business).
How To Create The Exit Strategy Section Of A Business Plan
Another alternative to a business exit strategy is a venture capital exit strategy. As our article on venture capital outlines, if a company is venture funded, assume that the investor has a pre-planned exit. As an early-stage company, it’s a natural part of getting investment. Typically with a VC investment, the goal is to exit the industry after five years through a sale or IPO, where they can liquidate their original equity investment.
Equity holders should have a broad outline of what the exit will look like. For example, the image below represents various motives ranging from financial gain to environmental risk reduction.
Retirement – Perhaps the most common reason of all motives is retirement. Business owners will inevitably retire at some point, and it’s best to create an exit strategy before doing so.
Return on Investment – A business exit strategy as part of a broader investment strategy. For example, a VC firm that plans to go IPO after five years makes the exit valuation part of the initial investment in the business.
Planning An Exit Strategy
Force Majeure – Sometimes an investor or owner has no choice: circumstances dictate that they must exit, such as a global pandemic.
Strategic buyers are usually in the same industry that the company owner wants to exit. And in other cases, the buyer may be in a nearby market who wants to compliment their products in the existing market, or expand their products in the market.
Financial buyers are simply looking for a financial return from their investment in the business, and exit is the main way to get this return. Examples include venture capital and private equity investors.
This form of exit, which is more common among startups than mature companies, enables company owners to exit by selling their equity to investors in the public equity markets.
Strategy For Start Ups
An exit through an MBO occurs when the owner sells the company to its current management team, whose familiarity with the business and technical aspects should make them the best candidates to achieve value from the acquisition.
A leveraged buyout occurs when a buyer takes out a loan or debt to buy another company. The buyer also uses a combination of their assets and the assets of the acquired company as collateral. Financial models can be used for many scenarios and simulations when LBO is an effective choice.
Liquidation can be used by a business owner to exit if they feel that liquidation will provide cash more quickly or that the personal assets of the business (e.g. property, plant and equipment) are more liquid than the business itself. .
Startups seeking VC investment may include an exit strategy as part of their initial pitch, but this is not mandatory. Sometimes this can be good, for example, if a startup promoter is well versed in the industry and has a reliable five-year forecast.
How To Write The Perfect Business Plan: A Comprehensive Guide
How have IPOs performed for startups in the last 12-18 months? If public markets show enthusiasm for companies such as startups, it will be easier to show how to exit.
Like IPOs, companies can use similar transactions (business or private equity sales) to show investors their way out. Comparable companies must be operating in the same or similar competitive space.
Remember that the purpose of the plan is to make the new business owner’s transition as smooth as possible.
Although the steps to follow are general, no one knows a business better than its owner, so take the steps necessary to make your business marketable to as many potential buyers as possible.
Strategic Business Planning
These steps also assume that you, the business owner, are weighing options elsewhere. Personal finance, family status and other career options are beyond the scope of this article.
However, the points below are intended to ensure that the business is ready for sale in the shortest possible time at a reasonable price.
It may seem obvious but a business can quickly lose focus on the goal of diversification, to the extent that it becomes “all things to every man.”
This can be beneficial in the short term for revenue streams, but make sure the business is focused on finding the right buyers when the time comes and is able to communicate what market segment the business occupies.
Small Business Plan Template
But if you’re looking to sell a business at short notice, it’s best to have a clean, well-maintained set of financial statements going back at least three years.
The less debt a business has on its balance sheet, the more attractive it is to potential buyers.
A common theme among small business owners in the US is thousands of dollars in credit card debt. This can be a red flag for many buyers and should be paid as soon as possible.
How important is the owner to day-to-day operations? If a business loses more than 10% of its revenue when the owner leaves, the answer is “very important.”
Barriers To Entry: Understanding What Limits Competition
If the profit is tied to the owner, buyers will not want to buy the business if the owner leaves immediately.
Although it can be a challenge, owners should aim to minimize their direct impact on the business, instead making it more marketable.
Closely related to the above point, businesses should have a set of standard operating procedures (SOPs), preferably in written form, that will allow any owner to run the business smoothly. Just by following a set of instructions.
Will the current managers be able to take over the business and run it as it is? If the owner is on vacation and one of the managers calls multiple times, the answer to this question would be “no.”
Initial Public Offering (ipo): What It Is And How It Works
Managers may need more training or the owner may need a different set of managers. In either case, having a competent team in place can be invaluable whether the business is for sale or not.