Every entrepreneur and small business owner starting or taking over a business should realize they will ultimately exit it. Most business owners hope they will retire from their businesses, either by passing it on to a family member or by selling it. In practice, business owners exit their business in a variety of ways, from closing down the unsuccessful business to merging with a major public corporation. Each of the different ways of exiting a business has a significant financial impact on your personal financial well-being. All will be influenced by how well you use the principles and practices in managing the day-today business.
KEY POINT: Exiting a business, whether it was successful or unsuccessful, can be as difficult as or even more difficult than starting the business. The financial decisions are more complicated because you are not starting with a clean slate. The implications of previous decisions, some of which might have been made 30 or 40 years earlier, may constrain your freedom to act. Getting the most value from the process requires advanced planning on many levels with guidance from skilled professionals.
In Case of Failure, Know Your Options
Every business starts with the expectation of success. Unfortunately, according to the Small Business Administration, 55 percent of all new businesses are closed within three years of their founding. Even professional venture capitalists – who select the businesses with the highest potential for their investments – expect a third of their portfolio companies to lose money.
Failure of a small business is not necessarily a reflection on the quality and capability of your management. Economic cycles, market change, technology change, regulatory change, and failure of major suppliers and major customers are all factors beyond your control. All can be the cause of a business’s failing.
Consequently, even the most optimistic and capable entrepreneur and small business owner should be aware of the ways to exit an unsuccessful business. These include simply closing the doors and paying off the business obligations, selling the business or assets of the business to another company, or going through a formal bankruptcy process. The size and value of the business’s customer base, the value of its tangible and intangible asset base, and the nature of its creditor situation will determine which route you choose.