Starting and running a business can be challenging. But most start-up business owners don’t even consider an exit plan. Most business owners are intent on getting the day-to-day and year-to-year tasks done. For them making money in business means ultimately showing positive cash flow and a bottom line profit.

With this mindset, entrepreneurs often figure they will create and carry out their exit plans at some indefinite time in the future.

It always pays to be proactive in business, especially now. Do you remember the time you saw an item on sale for a large amount off and you did not buy it only to realize a month later you should have stocked up? Alternatively, have you ever owned an item that was more valuable to a buyer a month ago than today?

Most of us can relate to these situations. If only the buyer or seller could have anticipated the situation, they would be better off economically today. It is a fact none of us can predict the future, but having a plan in place that anticipates future events and scenarios can help gain economic advantages that will predictably come up in the future.

This rule holds true for the sale of businesses. When the business owner has an exit plan in place, opportunities might not be overlooked as easily as they could without a plan. The exit plan is intended as a device to get the owner to think about the future. It also serves as a guide once arriving at the point of exiting. This is why having a written exit plan is always important to have.

Below is a discussion of the different types of business exits or selling arrangements that can be made:

• Initial Public Offering (IPO)– This exit involves selling stock to investors on a stock exchange. In doing this strategy there is a possibility of a high rate of return on your investment. The downside is that all the records of the company become public record. It is also very expensive and time consuming to start and issue an IPO.
• Sale of a Business – A business is sold to an individual, group of individuals, or an entity. Doing this, the business owner receives cash or an equivalent for the business. However, it can be difficult to find a ready, willing, and able buyer to purchase the business.
• Merger – In this type of exit, the business joins with an existing company. As with a sale of a business, you get cash, stock, or a cash equivalent, but you join in with new partners and may suffer a partial or complete loss of control of your business.
• Acquisition – Similar to the “Sale of a Business” exit, but usually involves an outright sale to another company. You receive cash right away, but you must find a ready, willing, and able buyer. It is also important to note that businesses in some industries are able to exit easier than others.

A sale of a business may work better in non-capital intensive industries such as service sector businesses with relatively low values. If the business value is higher, as with capital intensive industries such as manufacturing, retail, etc, it may be better to find a business type buyer. Most individuals cannot r
eadily come up with a few million dollars to buy a manufacturing plant. However, many individuals can come up with $50,000 to $500,000 to buy a service sector business. IPO’s are probably best suited for large, relatively known companies. Investors are reluctant to invest in smaller businesses without an ongoing reputation. Mergers can work well for any kind of a business. Since cash does not have to exchange hands mergers can readily be accomplished by any other willing business.

Facts and figures for this article were provided by Dr. Bart A. Basi and Marcu Renwick of The Center for Financial, Legal and Tax Planning, located in Marion, Illinois.