What Does An Exit Strategist Do?

Exit Strategist

What Does An Exit Strategist Do?

Every entrepreneur will have to leave his business at some point, whether it will be on his terms or somebody else’s. That is why it’s crucial to have an exit strategy. Some 60% of business owners would probably disagree, since they do not have a plan for leaving the business, and they are leaving themselves and their companies vulnerable.

An Exit strategist is there to prevent this from happening. He considers three basic things:

  • Are the market goals reached or ii the business is not making a profit?
  • The pros and cons of all the possible exit plans
  • How they apply to the company

These are the most common exit strategies:

  1. Management Buyout (MBO)
  2. Outside Sale
  3. Initial Public Offering (IPO)
  4. Transfer Ownership to Family

Management Buyout (MBO)

A management buyout is when company executives combine their resources to obtain some portion of or the entire business. Sometimes they place company assets as collateral for securing finance, and this is known as a Leveraged Management Buyout (LMBO).

Pros:

  • The management is already familiar with the company, and the transition period is short.

Cons:

  • This plan needs time to be set into action to secure the necessary funding.

Outside Sale

As the name suggests, a business owner is selling to an outside buyer. But the process can be lengthy, and you must make sure your position is strong before engaging.

Pros:

  • You can negotiate the terms, choose your buyer.

Cons:

  • You are losing all the influence in the company. You don’t have a saying in what happens to your business’ place in the local community or the employees.
  • It takes time and effort to make your company attractive to buyouts.

 

Initial Public Offering (IPO)

You can offer shares to the public. It can be a very lucrative way to leave your business.

Pros:

  • It can be extremely profitable in the right market.

Cons.

  • The process of going public requires both time and money.

 

Transfer Ownership to Family

This is probably the simplest of all the exit strategies. Still, some surveys show that over 80% of the high net worth owners do not expect their heirs to continue the tradition.

Pros.

  • This approach generally creates less disruption in the company, especially if your kids have grown up around the company or were involved somehow in the business.
  • The company remains in the family, which is especially important for companies that are significant to the local community, and sort of a landmark.

Cons.

  • The transfer may result in high estate taxes. It needs to be carefully planned, and even partially done when the company has a lower value.

Leaving their company may be somewhat disturbing to some business owners, and it is quite understandable. Creating a business always comes with a sense of enthusiasm and joy, and leaving your own creation is a saddening thought. But it is always good to have a contingency plan, just think of it as an insurance policy. All you have to do is choose the one that works best for you.

Previous Post Next Post

Post Comment