How to exit from your business?

Entrepreneurs live for the struggle of launching their businesses. But one thing they often forget is that decisions made on day one can have huge implications down the road. You see, it's not enough to build a business worth a fortune; you have to make sure you have an exit strategy, a way to get the money back out. The great American dream is to: build a business of your own; bring it to life; and make it successful. How you plan your small business exit strategy will determine your financial success. Just as building a successful business takes planning, a hard work, and a little luck, so does leaving it.

Type

Pros

Cons

• Who doesn't like seven figures of take-home pay?
• Private jets are fun.
• There's no need to think hard about getting out: just pull out the money when you need it.

• The way you pull the money out have negative tax implications. For example, a high salary is taxed as ordinary income, while an acquisition could bring money in the form of capital gains.
• Without careful long-term planning, you may end up pulling out money now you'll need later.

• It's easy and it's natural. Everything comes to an end.
• There's no negotiations involved.
• There's no worrying about transfer of control.

• Get real; it's a waste! At most, you get the market value of your company's assets.
• Things like clients lists, your reputation, and your business relationships may be very valuable, and liquidations just destroys them without an opportunity to recover their value.
• Other shareholders may be less than thrilled at how much you're leaving on the table.

• You know them. They know you. There's less due diligence required.
• Your buyer will most likely preserve what's important to you about the business.
• If management buys the business, they have a commitment to making it work.
• Selling to family makes good on that regrettable offhand promise made 30 years ago, "Someday, son/daughter, all this will be yours".

• You can get so attached to being bought by someone nice that you leave too much money on the table.
• If you sell to a friend, they'll be peeved when they discover they just bought the liability for that decade's worth of taxes you forgot to pay.
• Selling to family can tear the company apart with jealousies and promotions that put emotion way ahead of business needs.

• If you have strategic value to an acquirer, they may pay far more than you're worth to anyone else.
• If you get multiple acquirers involved in bidding war, you can ratchet your price to the stratosphere.

• If you organize your company around a specific be-acquired target, that may prevent you from becoming attractive to other acquirers.
• Acquisitions are messy and often difficult when cultures and systems clash in the merged company.
• Acquisitions can come with non-compete agreements and other strings that can make you rich, but make your life unpleasant for a time.

• You'll be on the cover of Fortune.
• Your stock will be worth in the tens - or maybe even hundreds - of millions of dollars.
• Your VCs will finally stop bugging you as they frantically try to insure their shares will retain value even when the lockout period expires (warning: they won't necessarily be looking out for your shares, too.).

• Only a very few number of small businesses actually have this option available to them since there are very few IPOs completed annually in the United states
• You need financial and accounting rigor from day one far above what many entrepreneurs generally put in place.
• Some forms of corporation - S-coprs, for example - will require reorganization before they can be taken public.
• You'll spend your time selling the company, not running it.
• Transaction costs on an IPO can run in millions.
• When your lockout restrictions expire, your stock will be worth as much as a third world shack.