Contributor: Mr. Panache
Business Exit Strategy & Approaches
A considerable amount of planning is necessary when choosing to exit harmoniously from your business. Most entrepreneurs often live for the struggle of keeping their businesses afloat and operational. What they also often forget is devising strategies to counter or prevent any possible huge implications and complications down the road.
Much can be owed to the excitement of venturing into business that these entrepreneurs overlook the need to find ways to get back their monies invested over the years when they part with the company. A proper plan is paramount if an entrepreneur wants to increase possibilities of an eventual exit that is seamless and rewarding. In most cases, it is the employees in a company who becomes aware that the company is struggling, but the entrepreneur is holding on to what he believes can turn around for the better. Selling is most often not the option, especially when having to sell in a public market because of the influences.
The efficiency of a plan alone is not adequate, strategies and tactics are also necessary. Some entrepreneurs may decide to bleed their companies dry on daily basis, practicing what is known to corporate as “Lifestyle Business”. Based on an article on entrepreneur.com, “rather than reinvesting money in growing your business, in lifestyle companies, you keep things small, take out a comfortable chunk, and simply live on the income.”
For this type of approach, the entrepreneur and their team typically remain in place for a certain period, while the company is sold bit by bit, and the company will continue to operate much as it has in the past. The sooner the planning on exiting, the better the exit from the business and this can be rewarding. If not done well, the company may be subjected to additional scrutiny such as from the CIPC in terms of provisions of the Act 71 of 2008, JSE Analysts and institutional investors.
Profits are always a motive, much like when an investor wants to put money into a business, they have only one thing on their mind which is to get a return on their investment. Another article on startupxplore.com cited that exits provide capital to start-up investors, which can then return the money to their limited partners (in the case of Venture Capitalists) or to the investors themselves (in the case of business angels). The down side may be that taking out too much money from the business, especially the one which must invest resources to grow, may prove to be a wrong move further down the road or shortly in that grace period.
It may be a different case altogether for much bigger and mature entities as they may bypass options of raising capital from Venture Capitalists or private equity firms, and only opt for an IPO Approach. An IPO stands for “Initial Public Offer”, meaning that a company starts floating on a stock market, selling a significant number of their shares in the process to various institutional and non-institutional investors.
More on the IPO will be discussed in the following article, keep an eye out on what we post.