Choose Your Own Adventure: Exit Strategies for Entrepreneurs

Small Business
exit strategies entrepreneurs

Written by NerdWallet Ask an Advisor contributor Jeremy Office

You’ve dedicated countless hours to building your business, but eventually, the time will come to move on to the next chapter in your life. Whether you’ve reached your goals, the business has outgrown your vision or you’re simply ready to retire, you can’t just exit your business overnight. You need a clear strategy so that you can seamlessly transition out of the business with as little stress as possible while maximizing your financial reward and legacy.

Start planning early

It may sound strange, but you need to start thinking about your exit strategy at the same time as you found your business. Decisions about how you incorporate, structure the company, secure financing, and even the benefits you’ll offer employees will all affect your ability to properly exit the business later on.

There’s another reason to start thinking about an exit strategy long before you think it may need to be implemented: You never know what might happen. A can’t-miss opportunity, great new idea you want to explore or personal circumstances (like a divorce or illness) could all put you in a position where you need to get out of the business earlier than you had planned. Having an exit strategy ready will make the process more enjoyable.

Know your options

You have various options available when it’s time to leave your business. While you may not have complete control over when and how you leave, you can make decisions today that will make it more likely that you’ll say adieu in the way you want. Your exit options include:

  • IPO: For some ambitious entrepreneurs, an IPO is the holy grail — a sign that you and your business have truly arrived. Plus, it comes with the possibility of a huge payday. But an IPO is not for everyone. Your business needs to have significant market value, and you must be prepared to deal with sometimes onerous reporting and disclosure requirements, shoulder high costs, and give up the control you may have once enjoyed. Worse, IPOs can flop, and you may end up holding a bunch of shares that aren’t worth what you hoped they would be.
  • Selling the business: As an exit strategy, a sale is less complicated than an IPO and allows you to cleanly cut the cord between you and the company while potentially earning a return on your investment. If you plan to sell your business, you must get an accurate business valuation from a business appraiser or broker before you plan to sell the company. Proper business valuation will help you make sure your sale price expectations are realistic. It’s not unusual for owners to overestimate the value of their business, even though statistics show that recently sold small business had a median sale price of just $180,000. Having an idea of your company’s value well before you plan to sell can also help you take steps to increase its value, such as making yourself less essential, so that a buyer knows that the business will thrive without you.
  • Transferring ownership: Rather than an outright sale, you may want to transfer ownership to someone you’ve groomed to take over the business, like a family member, junior partner or your employees. If you want to pursue this strategy, it’s usually best to start preparing for a transition well in advance, so that you can gradually hand over responsibility as the next-generation leadership learns the ropes.
  • Liquidation: If you can’t issue an IPO, sell your business or transfer ownership, liquidation may be your only viable exit option. You’ll probably get less than you would through an outright sale, but for some owners, liquidation is a perfectly reasonable strategy for exiting the business.

Exiting on your own terms

Just as important as understanding your different exit options is being able to identify the right moment for your exit. Like Kenny Rogers said, “know when to fold ‘em.” In fact, this can be one of the biggest challenges a business owner faces. Rather than waiting for the decision to be made for you, be on the lookout for signs that it’s time to exit the business, such as:

  • The economy and your industry are strong: If at all possible, you want to exit your business on a high note. If the economy is strong and your industry is growing, now may be the time to get out. Pay attention to market cycles and strike while the iron is hot. Finding a buyer willing to pay top dollar for your company will be easier when your business and the economy are flying high.
  • You’re ready for a new challenge: If running your business has become more of a burden than a passion, it may be time to step back. When you’re daydreaming about your next venture, avoiding the office, stressed because you feel you don’t have time to do the things you really enjoy, or dreading dealing with routine matters, you may need to put space between you and your business. In some cases, those feelings are signs that it’s time to embrace a new challenge.
  • You’re failing—but ready to try again: Not every business venture succeeds, and as an entrepreneur, you need to know when to cut your losses. If you’re not turning a profit after years in business, can’t attract customers and are losing top talent, your business may simply not be viable. Failure can be frustrating, but it is also a learning experience. Rather than sink more resources into a floundering enterprise, take stock of what you’ve learned and apply it to your next effort. As legendary entrepreneur Richard Branson says, “Failing doesn’t mean that you’re not cut out to run your own business … The key to bouncing back is to learn whatever lessons you can from the experience so that you can avoid making the same mistakes in the next launch.”

Proactive financial planning, both in your business and personal finances, beginning the day you found your company, will help make the exit process as seamless as possible. Consider the endgame as you make decisions, so that you can achieve both your business and personal goals. By taking charge of the situation from day one, you’ll be better able to exit your business on your own terms—and move on to your next big adventure.

Jeremy Office is a financial advisor at Maclendon Wealth Management and is based in Delray Beach, Florida. He helps clients build, manage, and preserve wealth, develop a business plan and wind down their business.


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