It seems redundant to think of exit strategies and shutting down a business well before it starts, yet every business agreement has a section that holds information about exit strategies in case the business does not flourish. The last bits of words of the previous sentence should act as a reality check for any investor/present shareholder because every investment is not rewarded with the kind of profits you imagined when you made the transaction.
Exit strategies are important to minimize the loss that occurs when a business unfortunately starts performing poorly or does not live up to the promise of the profits it showed the potential of earning. Terminating your shareholder’s agreement may not be something you want to spend your thinking capacity on, but the following few ways often help shareholders exit out without irrecoverable losses.
Initial Public Offer (IPO)
IPO has been a preferred way of avoiding loss for shareholders but since 2000, with the increase in internet policies, IPO has decreased drastically and is not recommended at times because liability concerns are high.
IPO refers to the involvement of the public by selling parts of your business in the forms of shares to it. The real benefit of this method is that it grants access to liquidity in the event that investors are seeking returns or refunds. With more investors you have a chance to buy out more businesses which suffer a roadblock and are finding a way out. Going public in the beginning seems tempting but there is always the risk of the business not turning out well enough to provide dividends to these shareholders which can include their payments as sunk costs and result in the business shutting down.
Merger
There is no harm in starting off a company with a friendly intention of staying in good terms with rival firms with whom you can integrate vertically or horizontally later on. Investors need some sort of surety that they will get their monetary investment back, and a merger can help your business stay afloat even in the worst case scenario of you not being able to cover your operating expenses.
A merger can be one that allows the owner to operate business in unequal partnership with the dealer or the owner sells it entirely. In any case, the performance of your company at some point in time should be trustworthy enough for the competitor firm to see potential in the deal. This also involves the element of goodwill where the company finds incentives to make a partnership with you.
Private Dealings
It can be handy if you offer shares to trustworthy people you know in your personal life or through some links, because these people will buy shares with aims other than just for receiving dividends and profits. These dealings can also be to attract investors in the company by sharing similar interests through exhibitions or online displays where the new business can reach out to tycoons who already exist in the market.
Online dealings have allowed investors to take up a considerable amount of money using the concept of similar interests. Instead of starting off with personal investors you know of this deal can also extend out to reliable public investors, which certainly increases the prospects of earning. The propagation of business through channels of proper communication is the most important aspect in this strategy. This in turn will help the business rely on dependable heads in the case of the business going downhill.
Cash Cow
This feature may not be very simple to understand, but it basically puts you out of the limelight of the business without you losing any sort of share or ownership.
If your business has a continuous and reliable stream of cash flows which can help you pay off investors and manage your operating expenses, you can make your business your cash cow! You can retire from the front face and start thinking of your next great ideas to make sure your business stays up and running. However, it is important to realize that using your business as a Cash Cow business exit strategy needs a very stable source of income to feed your next ideas while continuing bearing your expenses, so using this as a way out has considerable amount of risk involved.
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