Having your own business has its perks and is a rewarding experience; however, not all startups or even those that have been around for years are fortunate. Some run into financial or personal troubles that will push some owners to decide to close their company. If it comes to this point, you have exit strategies to choose from.
Transfer of Capital
This option is a term that indicates an owner’s plan to exit the business; this entails moving capital out of their company without selling it. As an exit strategy some organizations bonus out retained earnings as dividends, which is a simple approach, while others take a more complicated strategy of recapitalization. Another option is to establish a defined benefit pension plan to eventually transfer ownership to someone else, whether within or outside the company.
Sell the Business
Selling the business is one of the most commonly used exit strategies of business owners. They sell to management, employees, family members or the competition. Wait-and-see buying, leveraged buyouts or other techniques have common elements, which include:
- Identification of buyers and sellers
- Determination of a sale value formula
- The establishment of the means for transferring ownership
In certain situations, the owner sells the business’s assets; this provides a buyer to depreciate their value. In other cases, the stocks change hands when owners decide to sell their company. According to a business adviser that managed the selling of businesses in Utah, some take the entity purchase or redemption approach. This involves the company acting as an entity that buys ownership.
The owner who wants to leave their business has the option to gift equity or stock as they see fit. Common recipients of this strategy are charitable organizations or families. For this strategy, you have the option to transfer shares, or still retain an interest in the business (lifetime or partial).
These are three ways to exit your business as fluidly and as smoothly as possible. Study your company’s outlook to determine the best time to leave and the smallest number of losses.