More often than not, the decisions you make today, when the business is formed, will change as you develop and grow as a company. Your goal when you start a business may be to do an IPO or to sell the business to a larger company, but as your company grows, you may find that you have other financing opportunities that must come first or replace your original exit strategy. Taking that into consideration may mean delaying taking your company public, or sourcing alternative sources of financing.
Just because an IPO sounds attractive in startup mode doesn't mean it's the right decision today.
Or perhaps it makes more sense to sell an equity stake to a private firm. What additional financing might you need in years? How much capital do you need today to meet the demands of your business? In early , for example, there have been very few IPOs, and companies are not getting the strong valuations in the public market that we found in previous years.
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It may be smarter to take on debt rather than sell equity in the company. Find out if you qualify at forbescoachesc Opinions expressed are those of the author.
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Post written by Justin Sachs Motivational Press , an industry-leading book publishing company. Spending Equity In The Right Places Entrepreneurs in startup mode tend to be cash-poor and look for equity opportunities to bring on top-tier talent and advisors. Forbes Coaches Council is an invitation-only community for leading business and career coaches. The decision was strategic and allowed Tim to pursue other interests, including putting a focus on writing.
Passing Palo Alto Software on to family was more fortuitous than carefully planned. Tim had always encouraged his children to follow their own path. In fact, none of them got degrees in business. If you are considering passing your business on to your children or other family members, there are a number of things worth thinking about and planning for, including ensuring that whoever is set to take over the business has the relevant skill set, is competent, and is committed to the future and success of the business.
This will make it a lot easier to retire. For small businesses, liquidation is a common exit strategy. Are there any ways you can make it appealing? There are other things you can do to prepare your business for acquisition and other exits— check out this article for more information. Candice is a freelance writer, jeweler, and digital marketing hybrid. You can learn more about her on her personal website or reach out to her on Twitter candylandau. Buying a Business Prev Article.
What is the purpose of an exit strategy? Who needs an exit strategy? Should I include my exit strategy in my business plan? What type of exit strategy is right for my business? Initial Public Offering IPO This exit strategy is right for a small number of startups and larger corporations, but is not suited to most small businesses, primarily because it means convincing both investors and Wall Street analysts that stock in your business will be worth something to the general public.
It also covers different exit options available and outlines their advantages and disadvantages. Ideally, you should include an exit strategy in your start-up business plan. You then have the option to review and revise it whenever you work on your annual business plan and budget - and you can steer your business in the direction that your exit option demands.
If you manage an existing business and don't have an exit plan, you might consider thinking about what your preferred exit option might be - and whether you could change the way you run your business to help you achieve it. Passing or selling your business to a family member allows you to maintain an involvement in the business and pass the assets to your heirs.
If you plan on handing the business on to your children, it can help to involve them in the business as soon as possible so they understand how the business is run. Allowing them to gain experience working in other businesses can be equally important, as this will give them new strategic insight into your activities. However, you can't be certain that a family member will definitely be interested in taking on the business.
If you're starting a business with the clear aim of passing it on to family, it is worth seriously considering how you could encourage family members to invest their future in the business early on. A third party such as a non-executive director or business adviser can help you ensure emotions don't cloud your thinking and that your thinking is unbiased and logical. The most common exit option is selling your business. You can sell to another business, a private investor or your employees or management.
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A trade sale occurs when you sell the business or parts of the business to another outside party operating in your field. If your business isn't already a limited company, it may be difficult to achieve a trade sale. The value of the business is likely to be heavily tied to your skills or business relationships. You might also miss out on important tax benefits. The business may also appear less well-established and therefore less attractive to potential buyers.
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If you didn't start out as a limited company, it's worth considering incorporation to give the business its own legal identity. This may also make a merger possible. However, you may need to remain with the business for longer than if you make a straightforward trade sale.
You could also sell your business to managers or employees - known as a management buyout. This option may not be as profitable as selling to a trade buyer because your managers or employees might not be able to raise the necessary funds to buy the business. You should also think about what might happen if your managers or employees fail to buy the business, ie how you deal with disgruntled or demotivated employees. Floating your business - selling shares on the stock market - lets you realise your investment in the business by making it easier to sell part of or your entire stake in the business.
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But any financial exit from the business is likely to be partial. Potential investors will be wary if you sell all your shares - and you may not be permitted to do so.
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Any float will also affect other existing shareholders or investors. The shareholders agreement may give existing shareholders pre-exemption or voting rights which may make a float more difficult or reduce the amount you can realise. Relatively few businesses can realistically expect to float as they are unlikely to be able to finance the necessary growth to attract investors.
An alternative to stock market flotation is to attract venture capital investment. Venture capital firms or private investors provide medium to long-term finance to your business in exchange for a share in the company. Venture capital funding can be used to grow or develop the business but may also be a way to facilitate an exit from your business by way of a management buy-out or buy-in or via a stock market flotation.
It is important to check exactly what return a venture capital firm is expecting, including how they plan to realise their investment and eventually exit the business. Once you have secured funding you'll need to build a record over a number of years of delivering strong earnings and profits - and develop a business plan showing how you'll achieve further rapid growth.
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