Business exit strategies is a plan of selling an investment in the firm to gain substantial profit or to reduce the risks associated with losses. It means that you can sell your business with the aim of getting a reasonable amount of capital to begin another business. It can also be related to the statistics of past operations, where your business may be at risk of failure hence you can sell it to avoid the expected loss in future. Different exit strategies can be implemented by businesses to maintain the entrepreneurial culture.

• Selling to another firm

You can sell all your investments to another company that operates in the same line of products or one that gains interest in what you offer. It can be very profitable, and most companies acquire other businesses to expand their base of operations. The benefit of selling to another firm is that you are likely to gain maximum profit and a quick sale because they would want to get rid of competition. It also comes with its downsides as the existing employees may be removed from their positions. The competitor may also be interested in accessing your financial information and way of operations.

• Selling to open market

Most small businesses would opt for selling their investments to an open market at a specified price. You may benefit from this kind of exit strategy since an individual or a firm can purchase your business at the actual amount you needed from the investments. An attractive business is one that is likely to make profits and thus buyers would be willing to purchase the entire firm. The downsides are that a company with a lower profit margin is likely not to sell quickly. The selling price can be lower than what was expected by the owner of the firm.

• Selling to managers or employees

Your business can also be of much interest, especially to managers or employees. The benefit of this exit strategy is that you may share part of the returns on investment or act as an advisor to the company. It can also motivate the workforce to put more efforts while organizing for a long-term buyout. The only downsides are that the customers may not accept the new changes in the management and that employees may lack the necessary qualifications of managing the position.

• Maintaining the chain in the family

You can also keep the business operations or management within the household. It will ensure that profitability of the firm is kept over the years and the management being taken over by your heirs. You can make it possible by involving them in the business operations from a reasonable age. You can also acquire the advisory position. The only downsides are that the family members may lack the necessary skills to operate the business and that the consumers may not accept the new executives.

• Liquidation

Liquidation is efficient especially for small businesses or the ones managed by a single individual. It involves closing the shop and selling the entire assets of the firm. During this period, you can upgrade or make adjustments to your business to improve its ability to sell. It is simple the assets can be sold quickly depending on how valuable they are to the buyer. It also comes with its downsides, and you are likely to receive a lower return on investment.

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Prepare your company for sale, as business owner may be tied up in complicated situations and would be undecided on how to sell all the investments of a company. There are important steps that you can follow to ensure that your business is ready for acquisition.

Outline your goals and reasons for sale

Before selling your business, you should consider the motivation behind the exit plan and how profitable it will be in your plans. You should also understand the reasons why you are selling the business and the impacts of acquisition. Consider the values bestowed upon the strategic buyer and the future of your company’s brand. You need to prepare your company for sale to achieve the goal.

Organizing your business’s profile

Performing a due diligence will be a significant step before selling your business. You should check the history of your company and the financial trends. Getting everything sorted means that all your taxes should be filed and that there are no outstanding debts in the records. Unpaid taxes or debts are likely to retard the acquisition process and therefore must be cleared to smoothen the sale of your company.

Bring in the right experts

It is one of the critical steps you should consider while preparing your business for sale. These experts can be the investment bankers or tax advisors and are useful in ensuring the business is ready for sale. Their expertise in the field of marketing makes them a priority during your exit plan.

Creating awareness to the management

It is important to inform the management team about your decision of selling the company. They have to be ready for the change in ownership by taking part in the process of transition. They can adjust their conduct towards the change that is to be initiated in the organization. It makes them aware of the acquisition by another company or individual over the business.

Involving the principal stakeholders

It is also important that you should allow participation of the board while preparing for the sale to prevent arising issues after the acquisition. It will show that you are open with them in sharing crucial matters concerning the operations of the business. It does not interfere with the process of acquisition since the key stakeholders will be aware of the change in ownership. It also prevents chances of slowing down the process.

Creating awareness to the loyal clients

The acquiring company would like to ascertain the loyalty of your regular customers in the business. It is important to make your customers aware of the change in ownership as they may be used to your attention. It is also important to create awareness to other partnership the business was involved in because of the disagreements that are likely to arise after the acquisition. Their contribution to the organization will ensure that the acquiring company is motivated to purchase your business. You can also benefit from a high return on investment as they may quickly agree to the price you offer.

The vision and narrative of the company

It is necessary for the acquiring company to know about your objectives as an organization. A history of your organization and what you intend to is relevant to the acquirer as the new management will be under their authority. They deserve to know the story of your organization, and thus you create a company narrative by seeking assistance from your team of experts.

>> Business Selling Articles

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Some entrepreneurs would always be clouded by their ambitions, and would not be willing to cash out their businesses regardless of the risk associated with the operations. It is always important to look at the long-term goals of an organization which helps in determining whether you can sell your business or upgrade it to the next level. There are factors to consider when determining the appropriate time for selling your business

Inadequate skills to run the business

Your years of experience in managing the business may be reduced by the new technology and stiff competition from other companies. It may reach a point in time where your ability to handle various processes in the organization have been outgrown. It is usual for most businesses the fact that you are the founder and began when it was still in the lower stages of operations. Most managers would not be ready to leave their positions because of wanting to be in charge. It is the right time to sell your business since the new level of management may have greater experience in handling difficult areas of the industry.

Consistency of a decrease in sales

There are situations where the business may be experiencing massive losses regardless of your efforts in production. The problem can be the products have highly competitive substitutes in the market. You may be producing in large quantities, yet they do not meet the required standards to attract the attention of the customers.  It becomes difficult for the business to progress any further since the losses are higher than the profits. Among the appropriate options, you will be remaining with is to cash out the business and begin another one with new strategies of marketing. The right strategies will be useful in ensuring your business moves in the right direction.

A remunerative opportunity

There is always a good reason behind every exit strategy and that companies would always look for better ways of improving their sales. A lucrative opportunity will be a motivating factor to sell your business. You may plan to venture into a business that is considered to have a higher return on investment compared to the existing one. It would require you to set a period of attaining short term goals before selling your business. The estimated duration of the exit plan can be useful in building up the required capital for beginning the new business that is considered to be worth a fortune.

Motivation behind operating your business

Lack of motivation to run the operations of a business may as well result in low levels of productivity. The reason may be that you have managed the business for quite a long time and that you lack the enthusiasm of stimulating high performance. At this level, you can sell your company and use the capital to begin another business with a new line of products. A new business that is confident of higher returns may motivate you to work hard in attaining the organization goals. You also stand a chance of becoming successful in the process by building your reputation across a new line of products or services.

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Introduction

Several measures can be put in place to ensure your employees are motivated to contribute massively towards the success of the business and adding value to your company. Adding value to your firm not only enhances a committed workforce but also maintains the reputation of your business. It also increases productivity and higher returns on investments. There are strategies you can employ to add value to your firm.

Improving productivity

You should always be on the front to look for more ways of making improvements to your business. You can make it possible by streamlining the various operations of the business and planning on how it can achieve its objectives. You can also bring in new assets that will generate huge profits. It can include machinery and other equipment that are appropriate in increasing the level of output. You will have added value to your company by motivating your workforce and enhancing the level of productivity. You will also be able to enjoy large economies of scale.

Seeking advice from experts

You may have challenges in some areas of the business which needs the help of experts in the various fields. Their years of experience in handling difficult issues may be necessary for improving your business operations. Most of them usually determine what hinders the progress of the company and come up with solutions to the problems. Their expertise is useful in adding value to your organization as it will be guided by professionals in becoming successful in the industry.

Focusing on expansion

For your business to be profitable, it is important to diversify your products or services to various locations that guarantee significant economies of scale. It is important to be straightforward in your thinking by understanding your long-term goals. In other situations, you can merge with another company to extend your base of operations because of the many benefits you acquire from the partnership. You can reach your market because it increases your capital and output. You also gain new skills of marketing which will be necessary for expanding your business beyond its normal activities.

Being accountable

It is important to act responsibly to various situations in the organization. Accountability involves working closely with the workforce in establishing targets that are achievable. You can add value to your business by taking part in decision making and solving problems that may hinder the company’s progress. It will show your concerns in supporting the business towards gearing in the right direction.

Prioritizing your responsibilities

It is important to categorize the responsibilities that are essential for ones that do not add any value to the organization. Most people would spend much time on unnecessary activities than what is necessary for the aims of the business. The responsibilities which are important will improve the business operations. How you spend your time is also an essential requirement in managing your responsibilities. The activities that lead to the growth of industry are necessary and most of the time should be focused on improving the productivity. It will be making profits on a regular basis because of increased output and a committed workforce.

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Mergers and acquisitions are not only for the big-timers. If you are an aspiring entrepreneur, you should not only be concerned with offering great services and keeping your customers happy. You should also be on the lookout for opportunities whereby you can acquire companies or businesses that can give you an advantage in the market. Are you an entrepreneur looking to acquire a privately owned company?

Here are 5 helpful tips that you should consider before acquiring a business.

• Exclusivity Agreement

The first step every entrepreneur should take before an acquisition is to draft an exclusive agreement asking for a thorough investigation into the company. This agreement is often part of a letter of intent.

A prior agreement would also put you in good stead to avoid any bidding wars that might arise from other prospects. Most sellers would reserve the right for you to negotiate and investigate for 60 days. If you are not ready to buy or you are far from satisfied with the offer, you can allow the seller deal with other parties after the period has passed.

• Assets are Important

You should spend money on tangible assets and not stocks. A stock transaction gives you access to liabilities under law, whereas in an asset transaction these liabilities are only agreed upon within the agreement. This is not to say that some liabilities are not advantageous to an acquisition. But you need to be aware of any loopholes and protect yourself against any issues that might arise.

• Tailor to Transaction

The early draft of the acquisition agreement must be prepared to a particular transaction. It is not wise to use a general agreement in this case. This draft would be used for subsequent discussions regarding due diligence investigations, strategy, purchase prices and risk allocations.

The agreement should be well drafted with appropriate representations, warranties and indemnification obligations to protect the interests of the buyer. You should also get a consultant to help you out. The role that your consultant plays is a crucial one.

He must possess a comprehensive knowledge about your business and understand the risks that are involved. This helps you to make smart decisions based on your own terms. There is nothing better than getting someone who knows his way around these things.

• Look Out for the Caps

One of the most contested issues when acquiring a privately owned company are seller damages. This is neither right nor wrong. It all depends on the type of transaction and the bargaining power of both parties. If there are many people bidding for a company, the ceiling cap might be 7% or less due to the competition involved. If you are the only bidder, you might be in strong position to bargain asking only to pay the purchase price and waive the cap.

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Acquiring a company or business can give you some leverage over your competition. Many small businesses think that acquisitions are only for blue chip companies. They are always intimidated by the acquisition work process and think money would never be available to purchase an alternate business.

There would never be a perfect time to purchase a business. You need to seize the initiative and try to purchase a business once the opportunity arises because it is the right thing to do if you want to see your business grow.

There are smart individuals charting new courses and conquering new territories everyday while others struggle to keep their businesses above water.  If you are really interested in being competitive, you need to acquire businesses.

Many companies are successful today and have made it into the Fortune 500 group of companies simply because they acquired companies in the past. Company acquisition is a strategy that every business owner must employ because of the rapidly changing face of the industry.

Sometimes it is better for a company to expand by purchasing another business rather than pumping resources into building a brand image, marketing or advertising. Investors and financial lenders are always impressed with sales projections, asset bases and real financials. These things are provided only if you acquire a healthy company.

If you have not been involved in an acquisition process before, do not rush. Take a few months to access the business and align yourselves with people who can advice you accordingly about the pros and cons of the business that pricks your interest.

When 2 companies come together, it is expected that they will make more money with less expenses. Revenue earnings can shoot up based on cross selling between the 2 entities as well as the combination of employees which helps to increase productivity.

A small business owner must be willing to take risks if he wants to see his business grow. There is no venture that is 100% foolproof. You need to understand the difference between taking a calculated risk and a reckless one. It is important that you cut down your risks to the barest minimum when you choose to acquire a company or business.

You need to make the risks easier to quantify if possible. You need to understand the expenses required to make it a reality. You need to be able to make profit projections with a certain amount of accuracy.

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It is an open secret that not all mergers succeed. It is true that mergers help cut costs and boost productivity or profitability. It might be a simple and straightforward process for some companies. However, it might be downright complicated for others.

Statistics show that about two-thirds of all big mergers crash and burn. What this means is that they dip in the stock market and also lose confidence in the eyes of the consumer. Moreover, the reasons why some companies opt for mergers are flawed thereby devoid of adequate research and planning. There are many reasons that have caused the failure of mergers and acquisitions. Here are some of the reasons why many M&A fail.

• Unfavourable Market Conditions

A market condition might favour an acquisition or merger. But as soon as you sign all the dotted lines, the market can swing in a different direction and put you under a cushion. This makes it almost impossible to get back to the drawing board, especially when you are still trying to find your feet. Unless there is a cohesive integration plan to help guide your process, you will struggle to adapt and get out of the rut.

• Insufficient Workforce

A merger can take its toll on workers who cannot cope with the burden of new duties. These people spread themselves thinly and neglect critical aspects of the business which spells doom in the end. Before a merger is considered and eventually accepted, it is important to have the required people on board. Do not downsize because you want to save costs. Maintain a relevant staff strength so that your merger does not collapse from an insufficient workforce.

• Corporate Culture Clash

The chances of a business merger succeeding can be further hampered if the corporate cultures of both companies are totally different. When you acquire a company, you do not only seize the opportunity because it is available. There are other things you need to consider as well.

You need to look at market and product compatibility. Furthermore, you also need to consider the work force and the working environment of the previous company. Disgruntled employees have sent many joint companies down under.

• Haste in Cost Reduction

Companies focus too much attention on cutting costs after a merger. This adversely affects revenues and profits. Business mergers should focus more on building synergies and cohesion first rather than reducing costs immediately. This is another major reason why mergers fail and customers flee.

Apart from the reasons why many M&A fail, it is important to note that not all business acquisitions fail. Mergers are advantageous because they increase size and reach. They make you competitive in the marketplace and keep your competition on their toes. The utmost success of a merger mainly depends on how the 2 companies can be integrated seamlessly for daily operations.

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When you plan to sell your business, your one of the questions will certainly be, “Who will buy my business?”

If you are not intending to pass your business in the hands of your family members, there are four type of buyers for your business. The type of acquirer has following characteristics:

1. Strategic Buyer

• Typically a large firm including a Public Company
• Accustomed to long term business planning
• Economic considerations are evaluated; however, reason for acquisition is not always purely economic.
• Acquisition is based on factors such as introducing new markets.
• Offering a wider range of services and/or products.
• Gain larger market share.
• Improving company growth.

2. Corporate or Sophisticated Acquirer

• Typically comes from a large company background
• Employs “schooled” approach when determining value
• In most cases a high net worth individual, a group of individuals, an investor group, or a small Corporation

• Focuses on current and future, rather than past business performance.
• Places primary emphasis on capitalization of earnings, and on the ability to finance and leverage a purchase.

3. Financial or Lifestyle Buyer

• Usually an individual.
• Primary focus on income replacement and the opportunity to build equity.
• Major emphasis placed on historic and current business conditions.
• Case for case, the perception of risk is likely to be higher than that of the strategic or corporate style acquirer.

4. Industry Buyer

• Usually from within the same industry as the company.
• Place heavy reliance on a business’ fixed assets.
• The buyer presumes that they will bring virtually all other value to the enterprise.

 Note: The business value is addressed from the varying perspectives of these type of buyers.

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Reasons for Business Acquisitions

Acquiring another company is a great way to fast track the development of your company. There are companies that cannot succeed on their own and need to forge alliances in order to remain relevant in the marketplace. Companies that merge together must have a synergy and operate in different areas of specialty. Here are other reasons why companies acquire other companies.

1. Sharp Business Focus

It is possible to acquire a business in an unrelated industry simply because you see what lies ahead. It is not every time that people acquire businesses in the same industry. A strategic purchase can be made to increase performance or profitability elsewhere.

Companies should buy over other companies in other industries after adequate research and due diligence has been carried out. This helps to penetrate markets more effectively and establish market dominance for a long time to come.

2. Choke the Competition

Companies acquire other companies if they want to eliminate the competition and grab a bigger chunk of the market. A downturn of this strategy is that shareholders might see that you desperately want to purchase the business and ask for more money.  Stand your ground. You can even acquire shares from those willing to sell, thereby driving the price down rather than paying too much for an acquisition.

3. Growth

One of the main reasons why you should purchase a company is to grow your business. You can do this by buying a business that pulls its weight in certain areas like sales and marketing allowing resources to be diverted elsewhere. For instance, a big beer company can choose to buy a smaller beer company that has loyal customers but inadequate distribution channels.

4. Reduce the Risks

Mergers take place because business owners are looking for diversification. This helps to reduce the amount of risks because these resources are spread across various investments. If you want to reduce the odds of your business crashing, you should delve into another industry. It is not really smart to leave all your eggs in one basket.

It is true that working hard is a way to expand the frontiers of your business. Customers love great service delivery and a company that plays its position in the marketplace.

You should never pass up an opportunity to grow your business by purchasing a company that is available for the taking.  Be well prepared and brace up for the challenges that always come when entering a new line of business.

Remember Smart Owners Grow Through Acquisitions

That’s why Do Companies Acquire Other Companies.

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Exit Strategies for Small Business Owners

There are many reasons that can provoke you to exit your business as a small business owner. One of the reasons is if you are tired of your current business. You can also exit if business is slow or you just want to change to another business. When exiting your business, you need to have an exit strategy. Here are some of the best strategies that you can be used:

• Selling to Third Party

Selling to third party in the market is an strategy that allows you to make money while exiting. You should confidentially advertise your intention to sell your business and then find suitable buyers who are willing to buy your business at a high price. To be able to find the best buyer, it’s recommended that you start planning for the sale for 3-5 years.

• Sell to Your Employees

This is similar to selling the business, only that now you will be transferring the business to your employees (ESOP). Although, the strategy is still a sale, the terms and nature of the transaction is usually very different. While the friendly buy-out strategy allows you to make some money, you end up selling the business at a lower price that you would as you will be dealing with people that you know very well.
To do the negotiations professionally it’s wise that you engage an experienced professional.

• Keep your business in the family

Keeping your business in the family ensures that your legacy lives on. In this exit strategy you have opportunity to groom your successor/s for takeover and perhaps gives you some continued say in the business.

• Go Public

Initial public offering (IPO) creates a lot of frenzy. Although, the process is usually very expensive and labour intensive, you should consider going with it if your small business is on a trajectory and there are very clear signs of it being a big company.

Although, going public is a great exit strategy, you should note that you can’t exit as soon as the company goes public – you need to stick around and ensure that the company is doing well and stable. You also need to win the confidence of the investors.

• Liquidation

If you are choosing the option to liquidate your business to pay off your creditors, to deal with bankruptcy, to start another company, or because you cannot continue to run the business by yourself, may be an idea that seems like the easiest way out.

When a business is liquidated, all the assets are redistributed and most of the business owners are not aware of the method in which the redistribution works.

Conclusion

These are some of the best exit strategies that you can use as a small business owner. For a stress-free exit always prepare for the exit. This calls for you to ensure that the books of accounts are up to date. You should also ensure that all the core employees are comfortable in the business.

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