Exit strategies are a critical final step an entrepreneur uses to manage the direction a small business will take to develop it. There are several strategies that a business owner can apply as he ensures his future options are not limited and stakeholders are satisfied. An entrepreneur should engage investment partners and cofounders in the formulation an exit strategy as early as possible. According to Payne (2001) and in my opinion, it pays to plan ahead for various reasons.

Before an entrepreneur seeks venture capitalists and investors, he should contemplate the implication on the business’ dynamics. For instance, if a business owner gives his employees and operating partners the impression that he has no intention to exit a business and he still does so, it causes tension and dissatisfaction. Additionally,failure to inform other parties on the desire to exit a business may also cause several issues for a business that may affect its success. Therefore, a business owner should carefully formulate inclusive exit strategies that consider all partners and their needs.

An entrepreneur can opt to sell and liquidate his company a few years after its conception. Sales from a private company are mainly cash, shares of a public or private company or a combination of both that contributes to greater liquidity opportunities for one’s personal estate.However, some critiques argue that selling a business is a travesty to the employees who contributed to its growth. The new owner may insist that the seller operates the company for a specified period of time. This condition may give an owner the uncomfortable feeling of being an employee. The sale also means that one has given up rights to develop a business he’s worked very hard to build.

I agree that the sale of a company depends on the reasons Payne (2001) highlights. When an owner realizes that a business is a valuable asset, solely determines his net worth or is at risk from external factors, he may choose to sell it. Investments in small, well-run companies that can be sold for an attractive price later are an excellent idea. Low investments coupled with potential high Return-On- Investment increases the likelihood that a large public company would purchase such businesses makes this option viable.

Some entrepreneurs prefer offering their shares to public markets. In Paynes’ opinion, it is not a viable option since it limits one’s exit options when the public is involved.  I agree that this decision provides cash for growth for company that’s in a rut but it may prolong liquidation when need arises. The company also acquires new short-term investors which necessitates the need to deal with market makers and the Securities and Exchange Commission (SEC).

Selling the company to employees that built is also a rewarding feeling.  Employee Stock Ownership Plans where company contributions are channeled to stock acquisition. Stock plans are cost effective, motivate employees and allow the owner to maintain control of the company.  Such equity compensation strategies create a conducive working- environment for workers. However, this option has several ramifications that should be considered when planning for an exit.

Lastly, transferring ownership to a founder’s heirs is also an exit option despite its costs and controversy. It’s also a time-consuming process since U.S. tax laws limit gifting of heirs. This strategy works best when a company’s share prices are low or low-tech. Entrepreneurs should weigh all these plans to develop critical effective exit strategies.

 
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