2 min read There are many ways to exit a business, each with its own benefits and drawbacks. In this article we discuss the many ways in which a startup can exit the marketplace.
Buyer Options
There are several options for selling your business. Below are a few buyers from which you can choose:
- Strategic: The buyer buys your business to provide strategic value for their company.
- Financial: This buyer looks solely at the financials, in particular the cash flow, and buys the company without consideration to the strategic implications of their business.
- Management Team/Employee: This buyer works in the company and wants to own the business or continue to run it.
- Competitor: This buyer is a competitor and wants to take your business off the market by merging it into their own.
- Private equity: This is a buyer who plans to take over the business with a new management team and business plan.
- Generational transfer: This is typically a family member who wants to take over the business.
Other Exit Options
There are several other ways to exit a business. Some options include:
- Selling the business to an investor. This provides liquidity to the owners. The downside is it’s not clear what happens to the employees and the direction of the company.
- Develop an employee stock ownership plan. This transfers ownership to the employees and brings tax benefits to you. The downside is that the valuation will most likely be lower than an outright sale.
- Use a management buyout. This provides liquidity to the owners but can take some time to complete, even years.
- Transfer the business to a family member. This provides the family member with an income and potentially a career. There are estate tax consequences that must be considered with this option.
In exiting your business, consider the impact not only on yourself, but also on the employees, customers, and others associated with the business.
What If It Doesn’t Sell?
Most startups are launched with the idea of selling the business for a substantial gain in five to seven years. Many companies reach that stage and find they can’t sell the business, at least not for the price they want.
Here are some options:
- Reduce your burn rate to zero and keep running the business.
- Split up the business into its component parts (team, inventory, technology) and sell to multiple buyers.
- Sell the business to the other founders or to investors and take a revenue share for your equity portion of the business.
- Line up a manager of the business to take your place and then dividend back to the investors a portion of the revenue until they receive a payback amount.
While you may not reach a full acquisition as planned, there are several ways to exit the business and pay back the investors.
Read more in the TEN Capital eGuide: https://www.startupfundingespresso.com/how-to-achieve-an-exit/
Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group
