Thursday, March 31, 2011

5 Five Winning Exit Strategies

More Business ideas from Finally Fast:

Right after your business plan, the exit strategy is the most important ingredient of your business. Also referred to as a "harvest strategy" or a "liquidity event," an exit strategy is the method by which a venture capitalist exits an investment that he or she has made in the past. The investment is usually a private company. The objective of an exit strategy is to maximize the value of your business before converting it to cash. An exit strategy allows entrepreneurs to optimize their business for an eventual exit and make the business as appealing as possible to future buyers. Here are the five most successful exit strategies a venture capitalist can use to divest themselves of their business.

1) Merger & Acquisition
A Merger & Acquisition occurs when a larger company acquires smaller one in order to get control of the smaller company's products or services. A large upfront payment is usually paid out during the merger, and the management team of the acquired business often stays on board to keep the acquired business going. When using this exit strategy, the divesting entrepreneur has to do all they can to make their products or services as attractive as possible in order to get a high buyout.

2) Initial Public Offering
An IPO occurs when a privately held company offers common stock for the first time. In an IPO the investor looking to exit obtains the assistance of an underwriting firm, which helps the investor determine what type of stock security to issue (common or preferred), the best offering price for the stock according to the company's worth (the valuation) and the time to bring it to market. The investor then sell shares of their company to the public according to that valuation in order to generate a return for the investors. IPOs are also used by smaller companies to acquire the capital they need to expand.

3) Straight Sale
With a sale that does not involve a merger of any sort, the entrepreneur simply sells their business to another individual, normally someone who is skilled in operations and is able to scale the business in order to increase profits.

4) Liquidation
A liquidation occurs when a business closes its doors and liquidates its assets. Often a last resort, the possibility of liquidation should be planned for, otherwise the entrepreneur may suffer personal debt as a result of the shutdown.

5) Don't Sell; Hold on to You Business
If you are in a stable marketplace and generating steady revenue, you may decide to simply pay off the investors and entrust the business to someone else. Then you could use the remaining revenue to build another business. Golden Geese are hard to come by; if you have one, you may want to hold on to it.

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