Planning a Business Exit Strategy

If you desire a successful exit for your business, you are required to consider extensive planning. The sooner you begin, the more satisfying your business will likely have an ultimate exit.

However, even if there are various exit strategies available around, it is very essential to understand the fundamental characteristics of each option. Hence, this will greatly help you determine the best exit strategy you desire for your business.

The final portion for the process of business planning is your exit strategy—this means securing of your business before it dies. Actually, exit strategy is a plan on how to redeem a company from its first investors so that they will realize to take risks to begin or grow your business. Exit strategy as well is essential for the bank in which your company has borrowed money to start your business. The prestige of each of these strategies depends on the original intent, various ownerships, market conditions and your company’s overall performance. If you are planning to have a successful exit strategy for your business, you must consider the characteristics of each option. Here is a guide to help you acquire the best exit strategy option for your business.

Initial Public Offering

IPO refers to selling a part of the company in the public market. Your team usually remains in the business, some managers and investors may sell part of their stocks and the operation of your company continues. However, additional regulations are subjected to your company such as requirements of Sarbanes-Oxley, institutional investors and Wall Street analysts will quarterly scrutinize your company’s performance.

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Strategic Acquisition

In here, a different company will purchase your business, either in cash or in stock of the acquiring company. It can also be bought with the combination of cash and stock. You and your team’s retention in the company and the changes that may or may not take place in your company all depends upon its new acquirer. The advantage of this strategy is liquidity because selling your company to an acquirer allows you to sell part or all of your stocks to him. On the other hand, the disadvantage of this strategy is that you lose the company’s operating control.

Management Buyout

Management buyout is what you call if you make the decision of recapitalizing and selling your company to future managers. This kind of transaction is typically financed by the combination of private equity investment and or debt—where this debt is collateralized by the company’s assets. This gives instantaneous liquidity to early shareholders and owner and the ability for the company to continually be a private enterprise. This exit strategy benefits you to have a flawless transaction. The original founders are not managing the company every day, its management team—who is buying the company—are the ones who are bound to manage the company on a daily basis. This strategy marks for a change in ownership, getting liquidity for the shareholders, yet providing a flawless operation among the employees and other constituents of the company.

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