You should be thinking about your exit strategy from the day you start your business. That seems to be an unpopular opinion these days because of the way things work in Silicon Valley. Just remember, Silicon Valley isn’t the real world, and most businesses are not venture capital targets where the owners are going to exit with billion dollar IPOs.
There are only so many viable types exit strategies for small business owners, and the exit you’re aiming for should affect the way you run things. Here are the main way business owners exist their businesses.
Pass To Family
This is an especially popular exit strategy for a lot of small business owners I talk to. Here are a few things to consider if you plan on passing you business to your kids or other family:
- Get your family involved with the day to day operations of the business as soon as you can by having them work in the business.
- Tax planning can be really important if you’re planning this type of exit. Make sure you consult a tax professional as you get closer to your exit.
- Having a willing and competent successor is obviously important for this type of exit strategy to work. However, that successor is not always apparent when the time comes.
Sell Your Business
Everybody loves the idea of running a thriving business until you’re ready to quit, then quickly selling it to the highest bidder and exiting with a pile of cash and unlimited free time. The realities of this type of exit strategy are a bit more tricky.
- Preparing a business for sale can take time. Plan a timeline with years available to find the right buyer.
- Selling to employees can be a route to a successful exit. Keep your eyes and mind open to an ‘internal’ sale.
- Focus on value enhancers like well documented processes and intellectual property to get the most money out of the final sale.
Liquidate & Close
Liquidating a business is often an exit strategy owners take unwillingly and out of necessity. However, it doesn’t have to be. If you’re running a business where you think this may be the best option, knowing it in advance can make it a legitimate and profitable exit strategy.
- Focus on taking cash out of the business throughout the lifetime of running the business. Look for tax saving opportunities and ways to liquidate.
- Avoid large capital purchases that would be difficult to sell. Focus on capital purchases that hold their value well.
- Focus on efficiency in operations and keeping expenses low. This enables you to take larger distributions from the business.
One last note when talking about exit strategy. The exit you think you’ll make is not always the one you end up taking. I’ve talked with a lot of older business owners who thought they’d pass ownership to their kids or make a quick sale and had to pivot when their children decided they did not want the business or they couldn’t find a viable buyer. Remember these different types of exit strategies for business owners and if you need to shift, you can.
