𝐄𝐱𝐢𝐭 𝐒𝐭𝐫𝐚𝐭𝐞𝐠𝐢𝐞𝐬 𝐟𝐨𝐫 𝐒𝐭𝐚𝐫𝐭𝐮𝐩𝐬
Ever thought about what an exit strategy is and why startups need it? Simply put, an exit strategy is a plan made by a business for ending its operations or moving towards bigger goals. This plan helps the business deal with any market challenges and allows the owners to sell or reduce their share in the business. This way, they can make a profit or lessen any losses. Mentioned below are some exit strategies for startups.
𝟏. 𝐌𝐞𝐫𝐠𝐞𝐫𝐬 𝐚𝐧𝐝 𝐀𝐜𝐪𝐮𝐢𝐬𝐢𝐭𝐢𝐨𝐧
Mergers and acquisitions offer several benefits. They can reduce labor costs by eliminating duplicate roles, increase financial capacity by pooling resources, and enhance product distribution through geographical expansion. In an acquisition, a business changes ownership, while a merger involves partial share liquidation to form a new jointly controlled entity. These processes often involve similar or larger companies and result in operational services or products in the short term, despite the typically lengthy process.
𝟐. 𝐈𝐧𝐢𝐭𝐢𝐚𝐥 𝐏𝐮𝐛𝐥𝐢𝐜 𝐎𝐟𝐟𝐞𝐫𝐢𝐧𝐠 (𝐈𝐏𝐎)
An Initial Public Offering (IPO) is when a private company first offers shares to the public, allowing it to raise capital. This transition from private to public can benefit investors and provides the company with access to new capital for growth and expansion. Public companies, being transparent and credible, are also more attractive for funding.
𝟑. 𝐒𝐞𝐥𝐥𝐢𝐧𝐠 𝐓𝐨 𝐚 𝐓𝐡𝐢𝐫𝐝-𝐏𝐚𝐫𝐭𝐲
Selling a business to a third party is a common exit strategy. It requires preparation to maximize value and finding a buyer, which can be facilitated by a business broker. Once a buyer is found, due diligence is conducted, followed by complex negotiations. The final steps involve document review and asset transfer.
𝟒. 𝐌𝐚𝐧𝐚𝐠𝐞𝐦𝐞𝐧𝐭 𝐚𝐧𝐝 𝐄𝐦𝐩𝐥𝐨𝐲𝐞𝐞 𝐁𝐮𝐲𝐨𝐮𝐭 (𝐌𝐄𝐁𝐎)
A Management and Employee Buyout (MEBO) is a restructuring strategy where employees buy the company to focus operations on a smaller group. It’s often used in privatizing public companies or as an exit plan for venture capitalists. MEBOs enhance efficiency by motivating employees through job security. Funding sources include capital, personal savings, private equity, and seller financing. The transition from employees to owners can be challenging, leading to potential conflicts of interest and the collapse of some MEBOs.
𝟓. 𝐒𝐞𝐥𝐥𝐢𝐧𝐠 𝐭𝐨 𝐚 𝐅𝐚𝐦𝐢𝐥𝐲 𝐌𝐞𝐦𝐛𝐞𝐫
Selling a business to a family member can maintain familial involvement and mentorship. It’s crucial to involve children early, provide them with business insights, and ensure they have relevant experience. An impartial business advisor can offer valuable guidance on succession.
Liquidation is a process where a company, unable to continue due to excessive liabilities, sells its assets to repay debts. It’s an option for insolvent companies facing bankruptcy. The liquidator sells the company, deducts liabilities from the sale revenue, and distributes any remaining cash to shareholders.