There are several factors to consider when owning and running a business. One of those includes your business exit strategy.
What is a Business Exit Strategy?
An exit strategy is a set plan for a business owner to sell his or her part of the business. This can be to another company or investors. If a business is prepared for the exit of the business owner, it often has a higher chance of succession post ownership transfer. It can also help to ensure entrepreneurs see a return on investment if their business is successful.
Why would I need a business exit strategy?
When creating an exit strategy, you are basically asking, “how will I get my money out of my business and how much am I going to get?” An exit strategy is something investors look for in a business and is still necessary even if you are a sole proprietor. The future is unpredictable and a successful business investment is an organised one.
It is however important to note that there is no one size fits all Exit Strategy template. Your individual plan will depend on the company’s unique circumstances, market and industry conditions, trends, and other various accounting factors.
There are many Exit Strategies a business owner can choose. Below are 3 popular business exit strategy examples:
- Family and Employee Sales
- Mergers and Acquisition
Liquidation is where the entrepreneur either sells the company or sells off assets. This would occur when a business is not making enough profit, or is unsuccessful. If a business owner liquidates their company, they must pay off investors first from any monetary gain from the liquidation process, before taking any profit for themselves. Many companies choose to liquidate to avoid any additional, future financial debt, however it may be the least profitable exit strategy.
Family and Employee Sales
It can be hard handing over your business. Especially if it is to a stranger. This is where Family and Employee Sales come in handy. A business owner can consider selling to a family member or employee, with the likelihood to maintain the company reputation and legacy, as well as a protection of employee jobs.
If a business owner does in fact leave the business with a family member or employee, certain training should be put into place. You can’t expect your successor to take over the reins without any training. A family business will have a much better chance of success if you work with your successor(s) for a year or two before a change in ownership.
Mergers and Acquisition
Mergers and Acquisition is where a business purchases another or merges together. This may be because a buyer has an immediate need for your product or service. It can also offer the buyer a competitive edge by gaining a larger foothold in the market. Some business’ that choose this exit strategy may even target their potential acquirer(s) in advance and position their company accordingly.
To ensure you plan the right business exit strategy for your industry, speak to one of our team at Aspect Accountants and Advisors West Perth. We will be able to determine which method will be the most profitable moving forward with your business.
To book a consult please call our West Perth Accounting Office Ph: 9227 9400