What are the different types of business exit strategies?

Selling a business's value varies by country. In many developing nations, selling small and medium-sized businesses is tough, often with low value due to various factors. These include tax issues, currency instability, corruption, and short-term planning. To sell, prep work is vital. Review legal docs, maintain management reports from the start, or past years. Usually, a business's value is 1-1.5 times its annual profit. If selling in installments, avoid covenants; frame it as a debt deal.

In this strategy, you sell your business to another company in the same industry. This type of buyer can be a competitor or a company that wants to expand its market share, acquire your expertise, or gain access to your customer base.

I sold my business to partners and helped negotiate between partners several times. Often, when selling a business, there is resentment from one of the partners. It needs to be identified and neutralized immediately. The most important principle is that life is long; perhaps you will still work together. Therefore, there is no need to burn bridges. Contacting an arbitrator is usually not the best option.

The Employee Stock Ownership Plan (ESOP) is quite popular. In an ESOP, the business is transferred to the employees who become shareholders. It's great because it's a way to maintain company culture and provide employees with an ownership stake.

For most SMEs in developing countries, liquidation is often the only option to exit the business. Selling a B2B service business and niche businesses that require special professional knowledge is often more challenging. Liquidating a business is a complex and lengthy process. In some countries, it is often easier to suspend the company for three years, and after this, once the statute of limitations for tax reporting has passed, file for liquidation of the business. To do this, you usually need to place an advertisement in the newspaper, wait a certain period, and then apply for winding up of the company.

In some cases, liquidation involves selling off all the business assets and closing the company. This is typically used when the business no longer has value as a going concern or when it has significant debt.

I'm not sure why going public is seen as a bigger goal here. Often, companies choose this path because they can't get money from private investors. IPOs are good if early investors or founders want to cash out or gain publicity. But if you want to keep running your startup: 1. Aim to be self-sufficient. 2. Seek private investors.

I was offered the opportunity to take my restaurant chain public. This occurred at an event related to a magazine where I contributed articles, and I had the chance to meet with the management of the local stock exchange. I discussed our vision, emphasizing that we were audited by one of the Big Four accounting firms and were implementing corporate governance practices. They invited me to a meeting to discuss exit strategies. However, considering the size of our small chain, going public would have been a significant challenge. We even explored the idea of a technical listing but eventually decided against it.

I love that this exit strategy allows the business owner to access a larger pool of capital but involves significant regulatory requirements.

People rarely talk about this strategy. You can gradually reduce your involvement in the business while passing on responsibilities to employees or successors over time. This phased approach allows for a smooth transition.