Small Business Exit Strategy Planning – Are you ready to sell your small business? Do you plan to pass it on to family members? Maybe an old employee wants to buy the business from you when you retire? One thing is certain, eventually you will leave your small business and there are several options to consider.
How and when you will stop may not be the most important thing right now. After all, running a small business takes a lot of time and energy. If this describes you, you’re not alone. Studies show that between 50% and 85% of small business owners do not have a formal exit plan. There are many entrepreneurs who employ many people.
Small Business Exit Strategy Planning
A financial guidance report shows that Baby Boomers own 45% of small businesses followed by Gen X at 46%. This means that over ten million small business owners have no exit strategy.
Planning An Exit Strategy
A plan can be a simple document that includes important details and steps to be taken to a comprehensive package that includes an assessment performed by a financial expert and details of business operations. Each plan should include the following: a valuation (business value), financial statements, usually 3 years of profit and loss and balance sheets, business formation documents, 3 years of tax returns and important legal agreements such as leases.
Leaving a small business is more than a business transaction. It is an emotional process and often affects the owner and his family as well as the employees. Your strategy may change as you get closer to the date to sell or even as you go through the process.
According to an ExitGuide survey, over 50% of small business owners plan to sell to someone they know and are not looking for a buyer. Although price is important, both sellers and buyers usually want a fair price and to ensure the longevity of the business. If a buyer has worked in a business, they already know what makes a business successful and the challenges that come with it.
Focusing on a smooth transition is important, being an owner is different from an employee and it can take time to learn new responsibilities such as finance or HR. If you own a business and are considering this option, consider asking the buyer to perform some of these tasks as a test drive before committing 100% to the deal.
Planning For A Legacy: Business Succession And Exit
There is a saying that most businesses are not bought, but sold. This means the owner must spend time preparing for the sale, doing a good job of marketing the business, qualifying potential buyers and handling the due diligence process.
If you work with a business broker, you can offload some, but not all, of the work. Before you say those words, take the time to keep your finances up to date. A potential buyer will need three years of income statements, balance sheets and tax returns and you want to be prepared to respond to these requests when interest is high and provide accurate and detailed information.
Once you have this information ready, put together a business summary that provides an overview of the business that includes revenue, profitability, business history and future prospects. Don’t be shy, this is your time to brag a little and talk about your business and how the new owner can grow the business.
Sometimes selling assets and closing the doors is the best option, sometimes it’s the only option. Selling assets owned by a business is not the same as selling the business itself.
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The buyer pays for the asset without taking ownership of the business. This separates the liability of the company from the transaction. In some cases, the buyer will purchase multiple assets and the seller will prepare an Asset Purchase Agreement (APA). The proceeds from the sale of assets can be used to pay off debts and if there is any money left over, the owner can keep the proceeds.
When and how you exit your small business is a business and personal decision. While most owners want to find a buyer for their business, selling to an employee, business partner or family member is common. Realizing that this will be an emotional process and finding ways to manage this is important.
Above all, put the plan down on paper and share it with someone you trust who can provide feedback.
Eric Grafstrom is the founder and CEO of ExitGuide, a website dedicated to helping small business owners build exit plans and manage their exits online.
A Guide To Exit Strategies For Family Businesses
Subscribe to the weekly newsletter and get the e-book “80 Small Business Ideas to Inspire You” – free. Business exit planning is part of every successful business plan. Exit planning guides you on how to leave your company. You don’t want to take a loss when you close your business.
It helps you make a graceful exit without risking your investment. Solid exit planning helps you reassure investors that their investment is in safe hands.
Whether you run a successful business or face failure, an exit plan will be part of your business strategy.
“Exit planning allows an entrepreneur to sell his business to maximize the value of the company”
Retirement Strategies For Small Business Owners
Exit strategies vary from company to company. It depends on the size of the company or the type of involvement you want in your business.
If an entrepreneur wants to sell 100% stake in his company, the exit planning strategy should remove all his involvement from the company.
If you have a non-profit business; It is suggested to make an exit plan to get rid of the business. Exit plans for unprofitable companies should try to minimize losses.
Are you still unclear on why you need to have an exit plan? Go through this to get a clear idea about the importance of exit planning.
Small Business Owners Plan To Exit, But Aren’t Exit Planning
There is no right or wrong exit plan. Whenever you are ready to exit, choose a strategy that works for you.
In a merger, two companies come together for better benefits and rapid growth. All resources, brands, taxes, debts all rolled into one. In a merger, money is not exchanged on either side.
Acquisitions are different from mergers. In an acquisition, a company buys another company. Ownership will change. Everything will be transferred to the new owner. In acquisitions, money is exchanged. A company can buy part of the shares or the whole company.
Larger companies often hunt for smaller companies to acquire. They want to eliminate competition and increase their geographic footprint.
Strategy For Start Ups
In the digital world, Google and Android join forces for better benefits. Google is a large IT company. However, Android is a startup and struggling to make a name for itself in the market.
Android was acquired by Google for 50 million dollars. After the acquisition, Android took a significant share of the mobile phone market.
When it comes to M&A transactions, leaving the details to you can save you time, money and effort. To achieve your business goals, our consultants can write a business plan for you. A well-prepared M&A business plan allows you to get back to work quickly.
An IPO is an exit strategy that allows companies and private investors in companies to sell their stakes to the public Ex Alibaba IPO raised $21.8 billion in September 2014
Exit Strategy: Definition, Types, Business Plan (+template)
Private investors own shares in the company. They can sell their private equity (PE) to the public when they need cash.
Companies also use this strategy to raise money. Take Alibaba for example. Since its IPO in 2014, they have significantly increased their portfolio of products and services and their revenue has increased
Management buyout is called MBO. In this strategy, the current management of the company can buy part of the shares or the whole company if they can gather the resources.
This exit method benefits both sellers and buyers. The MBO sales process can be done quickly because the management team is familiar with the business and its potential.
Why Succession Planning Is Critical For Today’s Maturing Leaders
Since they are already running the company, MBO will increase their loyalty to the company and you may also be able to retain positions as advisors etc.
You can sell your shares in the company to your business partners or investors. However, this applies to you when you are not a sole proprietor.
Partners or investors who buy your shares are called “friendly buyers”. Often this person is from your friends or family or someone you trust.
Business liquidation is often considered a quick strategy to get out of business. If your business is doing well, you can sell your assets at a good price and can maintain cash flow.
Small Business Owner Retirement: Dealing With An Unexpected Exit
Liquidation is the obvious strategy to end your business journey. But if you have creditors, that money will go toward paying off the debt first before you get anything.
Acquisitions benefit the skilled workers in your company because it gives them growth opportunities and you can be sure they will be taken care of.
Filing for bankruptcy is your last option for exiting your business. File bankruptcy when you can’t