Exit Strategies for Business - Assignment Example

? Exit Strategies for Business Table of Contents Introduction 3 Advantages of Exit Strategy 4 Exit Strategies for Entrepreneurs 4 Conclusion 8 References 9 Introduction Most of the successful business houses had devoted much of their time and effort to achieve the position that they are into presently. Similarly, the business houses also need to consider the exit strategy that they can follow while they plan not to run their businesses and thus ensure that they get maximum return from it. It can be observed that it is not an easy task to sell the business or to dispose it off and thus it requires careful planning. The exit strategy must not be left for the future and the entrepreneurs must decide appropriately for the coming days. The main reason behind the entrepreneurs stepping away from their businesses is the retirements or the terminations of the partnership or the joint ventures. The entrepreneurs must have built their businesses with certain care and efforts and have taken them to a certain position and after certain point of time they may consider handing over the businesses to other entrepreneurs who by applying their experiences and perspectives can take the businesses to new heights. The entrepreneurs may as well decide to exit for the reason that they might have lost interest in that particular business or project and thus may consider entry into new projects or ventures. However, if planning is done in-advance it provides the entrepreneurs to decide on numerous options of exiting from the businesses. The profits can be maximized at the times of shutting from the businesses if proper strategic business direction is considered (The Great British Business Show, 2011). Advantages of Exit Strategy The main advantages of the exit strategy are that the value in relation to the business built by the entrepreneur can be protected and the future worth of the businesses can be enhanced. The tax impacts upon the estate or family can be reduced to a greater extent through exit strategies. Income can be generated that can assist in retirement or during any disability (Ewing Marion Kauffman Foundation, 2011). Exit Strategies for Entrepreneurs There are numerous strategies for exits, available to the entrepreneurs. They are buy-sell agreement, cash sale to the third party, buyout or recapitalization along with employee stock ownership plan. Each one of them has been explained below: Buy-Sell Agreement: Buy-sell agreement strategy enables the entrepreneurs to end the business relationship by the formation of the parameters for the participants who would be buying the business. It can be mentioned that one or two associates are capable of involving themselves with the business while the others may plan to separate themselves from it. The agreement may assist the businesses with funding for the takeovers because of disability or for the reason of the death of the co-owners. The design of the buy-sell agreement needs to be done carefully so that the execution of the strategy does not get overlapped with other estates as well as succession planning tools. Cash Sale to A Third Party: When the businesses are to be sold by means of cash transactions, it can create immediate liquidity for the seller. Through means of cash sales owners are capable of executing immediate separation from the businesses. While searching for the third party buyer, the challenge is the difficultly to find a market ready where the small businesses can be sold. In simple words, the owner needs to put great deal of time and money to search for the profitable deal. Buyout or Recapitalization: In case of the leveraged transactions, the corporate entities such as the managers, partners as well as the business houses tend access the funds so that they can buy the stocks of the existing owner. For the purpose of dissolving the multiple ownership arrangements or for preserving the businesses as a going concern this arrangement of buyout or recapitalization is quite important. The strategy may also be useful while transferring the responsibility of the businesses to the children or other inheritors during the creation of financial independence from them. Employee Stock Ownership Plan (ESOP): Employee Stock Ownership Plan (ESOP) is a kind of leveraged buyout that has been prepared for assigning the control of the business to its current employees. The transaction cost during the ESOP may be higher in comparison to the cash sales. However, it has been observed that this cost is inclined not to look higher when compared to the complex deals. The owners tend to get tax benefits as well with ESOP transaction, thus improving their net worth (Baird & Company, 2009). It can be mentioned that in addition to the above mentioned four strategies, there are other strategies as well that a company may consider while making decision to exit from their businesses. These are via mergers and Initial Public Offerings (IPOs). These two exit transactions can assist a company to enhance the value of the company before exiting from the business. Mergers: Merger is treated as one of the viable options that the owners can consider while planning to exit from the business and this can assist them to enhance the value of the company as well. In case of merger, there is no exchange of cash but the owner tends to exchange the ownership interest in his own business for the interest that he has in other entity. However, a true merger is not considered when the owner wants to exit immediately (Danzon, Epstein, & Nicholson, 2007). Initial Public Offering (IPO): It can be mentioned that most of the small business houses do not consider the use of IPO as an exit strategy since it costs huge amount of money to facilitate. Through IPOs, the company growth can be enhanced but it requires detail financial reports to be presented. It has been noted that Facebook, the social network giant, denied going public since it did not want the scrutiny, distraction and all the hassles that tend to come from being a public company through IPO (Fox, 2011). Outright Sale: Outright sale is also one of the strategies that the owners can consider while planning to exit from the business. The business owners planning to retire right away can make use of the outright sale strategy (National Federation of Independent Business, 2011). It has been noted that the choice of the strategy may not always be for a particular kind of business. However, there are certain strategies such as buyout that takes place in the insurance companies, CPA (Certified Public Accountant) firms, distribution and manufacturing firms, law practices among others (Startup Nations, 2011). IPOs have been effective exit strategies that have been adopted by the high-tech companies and for the equipment companies such as that of Ely Callaway (Witmer & Lim, 1999; Foust, 2008). Liquidation strategy which is also considered to be one of the most significant exit strategies is apparent in the retail stores as that of Mervyns (Thornton, 2008). It has been evident that sale to the third party exit strategy can be suitable for the real estate businesses that can assist them in maximizing the profits and thus increase their net worth (Zaslow, 2011). Conclusion It would not be wrong to mention that the way people consider getting into every day deals; they must as well be aware of the ways of getting out of those deals. Getting out here can be considered as an exit strategy. Exit strategy can be conceived as the way a person tends to view the project after certain point of time and whether he can get out of it successfully by earning huge profits. There are many ways through which people can choose to exit from the businesses. It has been observed that most of the exit strategies are applicable for specific kind of businesses. However, they might be applicable for other businesses as well. Companies need to make proper planning for exiting from the business in order to avail expected benefits. References Baird & Company. (2009). Exit strategies for entrepreneurs. Retrieved from http://fc.standardandpoors.com/pdf/brd/7221.pdf Danzon, P. M., Epstein, A., & Nicholson, S. (2007). Mergers and acquisition in the pharmaceutical and biotech industries. Managerial and Decision Making. 28 (4-5), pp: 307-328. Ewing Marion Kauffman Foundation. (2011). Exit strategies. Retrieved from http://www.entrepreneurship.org/en/resource-center/exit-strategies.aspx Fox, J. (2011). Why facebook doesn't want to go public. Retrieved from http://www.businessweek.com/managing/content/jan2011/ca2011017_355912.htm Foust, D. (2008). The perils of going public. Retrieved from http://www.businessweek.com/magazine/content/08_21/b4085064750402.htm National Federation of Independent Business. (2011). Exit strategy: Merger, IPO or Sale?. Retrieved from http://www.nfib.com/business-resources/business-resources-item?cmsid=52291 Startup Nation. (2011). Business exit strategy: got one?. Retrieved from http://www.startupnation.com/business-articles/920/1/AT_WhatIsYourExitStrategy.asp Thornton, E. (2008). How private equity strangled Mervyns. Retrieved from http://www.businessweek.com/magazine/content/08_49/b4111040876189.htm?chan=magazine+channel_in+depth Witmer, R. H. & Lim., L. (1999). IPO VS. M&A to go public or merge?. Retrieved from http://www.regeneration-partners.com/artman/publish/printer_24.shtml Zaslow, D. (2011). Exit strategies for the real estate investors. Retrieved from http://www.rbz.com/news/bottom-line/exit-strategies-for-the-real-estate-investor/ Read More