Exit Strategies for Small and Medium-sized Businesses

If you have just spent the last few years raising a business from nothing, the last thing you’ll be thinking about is how to leave.

However, there should always be a plan in place.

Or at least, an understanding of how to get out if needed.

In this article, we will outline some of the more common exit strategies available to small and medium-sized businesses.

What is a business exit strategy?

Exit strategies are plans for if the business owner would like to sell their investment in their own business. Having a decent exit strategy helps business owners to have an ‘out’, even if they don’t plan on using it.

Why do exit strategies differ for small to large businesses?

Realistically, large businesses will have many more stakeholders than small or medium businesses to keep happy – so actions will need to take this into account. The sheer scale of operation will close the door to some forms of exit strategies.

Merger

Mergers are exactly what it sounds like – two businesses merging into one.

Investors usually love mergers, because it is an incredible way to increase the value of the business. To go through / be involved in the merging process – you obviously still have to be part of your current organisation in some decision-making capacity.

If you want to sever ties with your current business immediately then a merger may not be the solution that you are after.

The five types of mergers are as follows; Horizontal, Vertical, Conglomerate, Market Extension, Product Extension.

Acquisition

Acquisitions are when a company buys over another business – the ownership of the business sold to the buyer alongside everything else.

Acquisitions are considered a great option as it allows the seller to negotiate a fair price – often even selling the business for well over its actual value.

Sell to a friend

You may be more comfortable seeing your business under the stewardship of a friend or family member, rather than an unknown individual with bags of money.

It is important to weigh up the pros and cons of this, as if not done properly could jeopardise close personal relationships.

Initial Public Offering (IPO)

An IPO is the first sale of a businesses’ stocks to the public – selling off ownership in the form of stocks to the general public.

It is quite difficult to start an IPO, especially if your business is on the smaller side of the scale.

However, by taking the business public it is possible to go through a high-growth period. This is possible as IPOs raise vast quantities of funds, making it possible to pay off any debt the business has accrued.

Liquidation

This is the equivalent of pulling the plug from the business.

All of the business operations end and assets are sold to creditors and investors – with the former getting first dibs.

If you liquidate the business, you also lose the business concept, reputation, customers – everything you helped to build.