Published on April 4, 2023
I love talking to startups and business owners and finding out about the exciting things they are building. There is so much excitement in their eyes. They are thinking that they might be the next Unicorn company, and everyone involved will make billions. Unfortunately, many will not make it to that level before moving on, but many will have reached a level of success. What happens then? Let's be honest, they won’t want to or be able to stay with the company forever. At some point there has to come a time when a founder is looking to retire, pass it on to the next generation, or get pressure from parties such as investors or family members to move on. With that, what are the ways that the founder(s) could exit the business?
Sale to Another Individual: Depending on the type and size, one of the most common ways to exit a business is to sell it to another individual. Maybe it is to a friend you have a relationship with or a stranger at the golf course. If you have the network and have prepared properly, this can be an attractive option if you're looking for a quick and straightforward exit.
Initial Public Offering (IPO): Going back to the scenario at the beginning. This is the dream for many founders. An IPO involves selling shares in the business to the public, and it can provide a significant payout to the business owners. However, it's a complex and time-consuming process, and there are also significant regulatory requirements and ongoing obligations that come with being a publicly traded company. Luckily there are so many markets that this possibility is not as far out of reach as many thinks. You may not be able to go public on the New York Stock Exchange, but what about Toronto, Singapore or Jamaica to name a few options? The requirements are much lower and these markets might be able to provide you with the liquidity you want today and potential for capital and opportunities for growth that could lead to one of the bigger name exchanges later.
Merger or Acquisition: Another option for exiting a business is through a merger or acquisition. In this scenario, your business is combined with another company, often resulting in a new, larger entity. Mergers and acquisitions can be a good option for businesses that are looking for growth or that want to tap into new markets or technologies. However, the process can be complex and there are many factors to consider, including the cultural fit of the two companies, and the impact on employees, customers and suppliers. This process could take on average 6-9 months from start to finish, depending on how well prepared the company is going into this process (see other articles on the M&A process)
Management Buyout: A management buyout (MBO) is a type of acquisition where the management team of the business takes control of the company. This can be a good option if you want to ensure the future of your business and you have a strong management team in place. The culture will likely remain after you exit and the people that are there in place are likely to stay. However, it can also be a risky option, as the management team may not have the experience or financial resources to successfully run the business on their own and depending on the type and size of the company, there might not be any worker(s) with the means to do so.
Liquidation: Maybe the business is not sellable, or you are looking to close the doors and just move on. In this case liquidating the business might be an option to consider. This involves selling off its assets and using the proceeds to pay off any outstanding debts. This is often a last resort for businesses that are unable to continue trading, but it can be a good option if you're looking to extract value from your business in a fast and straightforward way. However, liquidation can also be a stressful and time-consuming process, and it can also have a significant impact on employees, suppliers and customers.
Succession Planning or Passing the Business to Family Members: Succession planning involves preparing for the future ownership of your business and can involve passing the business on to family members or key employees. This can be a good option if you want to ensure the future of your business and you have someone in place who has the skills and experience to run it. To see if the person you think is right for this, there could be a trial period or a gradual transition as the person might find sitting at the head of the table to be not what they expected. (A great book of questions to ask is Every Family's Business: 12 Common Sense Questions to Protect Your Wealth) However, succession planning can be complex, and it's important to get the right legal and financial advice to ensure that the transition is smooth and successful.
Retirement or Stepping Down as Owner or CEO: Retirement or stepping down as the owner or CEO of a business is another way to exit. This can be a good option if you're looking to take a step back from the business and enjoy a well-deserved rest. However, it's important to have a clear plan in place for the future of the business, including arrangements for leadership and management. This might be a preferred solution for someone that has built out the processes of a business to the point where they are only spending a limited amount of time working each week and want to maintain the cash flow from the business but want to focus time on a new project or other areas in life.
Partial Sale of your Company: It is not a full exit, but maybe taking some chips off the table will be enough. Depending on the size of your company you might be able to find an outside party that is interested in buying a minority or majority stake in your company. This could give you the peace of mind and depending on who they are, they might want to place their own operating team into the company which would leave you the opportunity to step back and maybe change your role to more of an advisor or not involved in the day-to-day operations.
With that, when you start a business you might have big goals in mind, but even if you don’t make them there are still a lot of great possibilities for you. With careful planning and the right exit strategy you could have an exit that you are proud of that will still put you in a place that you are able to fulfill the life you dream of.
*** The content is not intended to provide legal, financial or M&A advice. It is for information purposes only, and any links provided are for your convenience. Please seek the services of an M&A professional(s) before entering into any M&A transaction. ***
For More Information
Shawn Flynn is a Principal at Global Capital Markets, a premier middle-market investment bank with a global presence. Shawn has expertise in mergers and acquisitions, capital markets, financial restructuring, and secondaries. He speaks Mandarin and is the host of the award-winning Podcast The Silicon Valley Podcast. Connect with him on LinkedIn.
Shawn Flynn, Principal SF@GlobalCapitalMarkets.com
Tel (415) 578-1445 Ext. 4
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As a middle market investment banking boutique, Global Capital provides mergers and acquisition advisory services, access to corporate debt and equity capital, and strategic advisory services to successful middle market companies. For over twenty five years, our team has offered companies a unique blend of sophisticated financial expertise and access to the global marketplace of buyers, sellers and financiers.
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