Business development · 22 December 2016

What is an exit strategy, and why do I need one?

Having an exit strategy pays off
Having an exit strategy pays off
Whether it lasts a few years or a working lifetime, small business owners must understand that business ownership is often a finite concept and it is best to have an exit strategy. In many cases, the owner’s direct involvement will cease and the business may close, or pass on to someone else.

Although it seems cynical to pre-empt the end, entrepreneurs who plan their business exit from the outset retain control over what many analysts believe is a lucrative phase of the business cycle. So, let’s look at the notion of a business exit? and consider some of the available options.

The company as a simple concept

In fundamental terms, a company is a simple input/output model. There are two possible major inputs entrepreneurial effort and investor’s cash yet the company’s cash value (as realised in the exit sale) is the only significant output. No matter how complex, creative or worthy the business may become over its lifecycle, the selling price on exit is the final summative assessment of the entire enterprise.

The compelling truth exemplified by the above model is that a well-planned exit strategy always pays off. So here are five possible options for selling a business:

Liquidation

As a planned option, this is the least likely. However, many businesses do simply close down with no potential buyer in sight. Though the owner can (nominally) control the process and there are no complex negotiations, this last-ditch solution often represents a complete waste of valuable assets and a shareholder’s investment.

The lifestyle? alternative

Certain entrepreneurs may succeed in creating a business which generates a high income without a pressing need for ongoing investment. Combined with a minimalist approach to overheads and a decision to forsake growth, this clears the way for a business owner to draw a handsome salary and extract all possible cash benefits as they become available.

Provided there are no large investors who could complain that their investment was being put at risk this strategy will fund a lavish lifestyle. If the enterprise is planned and there is a strategy for minimising any adverse tax implications, then this model can conceivably achieve its purpose.

A friendly sale


 
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ABOUT THE EXPERT

Jo joined Dynamis in 2005 to co-ordinate PR and communications and produce editorial across all business brands. She earned her spurs managing the communications strategy and now creates and develops partnerships between BusinessesForSale.com, FranchiseSales.com and PropertySales.com and likeminded companies.

Business development