It is essential that every company plans its exit strategy beforehand to avoid future losses in the future. In addition, planning for an exit will ensure that the company has provided all the stakeholders with pertinent information so that they can prepare themselves appropriately for when the company or business owner finally decides to exit the industry and the market. The usual exit strategies regardless of industry include selling the company, reorganization, liquidation, selling an investor’s shares back into the company, and selling an investor’s shares to a new investor.
However, several alternative exit strategies exist for companies that want to dissolve their business activities. One such plan is the Employee Share Ownership Plan. The ESOP involves the business owner selling the business to the employees of the company (Jensen, 2014). The plan is advantageous as it gives the business owner ample time to exit.
The plan will also enable the owner to leave a lasting legacy at the firm and at the same time ensuring that he gets a fair market value for his business. The fair market value will assist the business owner have the required resources to start a new venture comfortably.
Another benefit of this plan is that it ensures the employees retain meaningful employment even after the business owner is out of the picture. Furthermore, ESOP guarantees that the business remains locally rooted as opposed to a situation whereby the new owner wants to transfer the business to a new geographical area or brings in new products that lack local appeal.
A business owner can also use the merger and acquisition method as a safe alternative exit strategy. The method involves merging with another company or being purchased by a larger enterprise. The main benefit of merger and acquisitions is that they provide enough resources for the business owner to focus on other ventures (Gladstone and Gladstone, 2004). This is especially the case when the merged companies have complementary skills. The merger will result in a decline in operation costs and the business owner will have enough money to fund new ventures.
The third alternative exist strategy is to find someone the business owner trusts to run the company for him. Simply put, the business owner relinquishes the management of the company to a confidant who is extremely skillful in the area of operations (Gladstone and Gladstone, 2004). The business owner will still retain ownership of the company and receive annuities. The money that arises from the annuities can be used to fund other ventures that the business owner may be interested in.
To avoid potential exit strategy problems, it is imperative that one has an exit plan beforehand for the new venture. The new venture should be structured in a way that allows for a number of exit strategies to ensure that the business owner does not go into losses when he finally decides to let go of the company. The structure needs to be flexible enough to allow the business owner ample choices when it comes to exiting. Without flexibility, the owner may be constrained to one exit strategy that might lead to him making losses instead of profits when he exits.
Flexibility in the structure of the new venture not only affords the luxury of choice for the business owner, but it also makes the venture more appealing to potential investors. Investors want to put their money in a company where it is easy to withdraw their funds once they feel like they need to move on to a new venture.
It is also imperative that accessible communication channels are laid out at the beginning of the new venture. All the stakeholders need to be informed at the beginning of the venture of any existing exit plans for the new company. Communication of potential exit plans will guarantee a smooth transition for everyone involved once the exit plan comes into play.
Gladstone, D. & Gladstone, L. (2004). Venture capital investing. Upper Saddle River, NJ: Pearson Prentice Hall.
Jensen, C. (2014, Jan 9). An Alternative Exit Plan: Selling Your Business to Your Employees. Retrieved on 10/6/2016 from http://smallbusinessbc.ca/blog/alternative-exit-plan-selling-your-business-your-employees/