Every business owner has to exit their business at some point. Some business owners exit their business through a calm and carefully planned exit. Others exit their business unplanned when they hit hard times, or when they pass away. The bottom line is, however, everyone has to exit their business.
There are great ways to exit a business and there are poor ways. A great exit will leave you with the maximum cashout possible with minimal hassles. A poor exit will result in your asset depreciating in value, while causing a lot of stress.
Here are the five most common ways to exit a business, along with a brief analysis of each method.
==> 1) The Outright Sale
This is the most common kind of exit and it works very well. Whether you’re a family restaurant selling to another restaurant owner or you’re Google buying up YouTube, the outright sale is relatively simple.
You value the company being purchased, then make the purchase with either cash, stock, bonds or a combination of the above. This kind of sale usually allows the owner to realize a lot of value.
==> 2) Mergers
Mergers are when two companies combine their strengths for a better win-win scenario. For example, when Disney acquired Pixar, that was more of a merger than an acquisition. Steve Jobs immediately became the largest shareholder of Disney and Pixar continued to produce the most important films in Disney’s array of films.
Mergers work a lot like acquisitions and are also a great way to realize value. Mergers are much more common in large companies than small ones.
==> 3) Floatations, IPOs and Reverse Mergers
Another way to cash out of a company is to take the company public. If you’re large enough, that means using an IPO. If you’re a small company but want to go public anyway, a common tactic is to use a reverse merger.
When you go public, the owner of the company switches from private shareholders to anyone who wants to buy shares on a public exchange.
As far as cashouts go, IPOs and floatations can be some of the most lucrative. That said, there are a lot of hassles involved.
==> 4) Management Buyout
Instead of selling to an outside party, with a management buyout the company is sold to the managers and employees instead. It can be sold for cash, or there can be some sort of owner financing involved.
Often times management buyouts will result in lower sale prices than if the company was sold in an acquisition. That said, this is often an emotional decision rather than a financial one.
==> 5) Liquidation
This is the worst option of all. This is when you simply throw out any value the business has as an operation and liquidate the business for just its asset values. This often happens if the owner didn’t plan for an exit well.
These are the five most common ways to exit a business. Some are clearly better than others and some clearly bring in more cash than others. Which option(s) do you want to shoot for?