An exit strategy helps owners or investors of a business to sell their investment or stake in the business. It is a contingency plan for the owner/s to minimize risks and optimize returns while quitting the enterprise. Business owners need to have an exit strategy in place even before they launch their companies. Exit strategies are essential as they offer direction and clarity to the stakeholders for attaining their financial and strategic goals. With an exit strategy, business owners can move on without experiencing financial problems. It also helps to ensure sustainability and smooth continuity of business activities.

An entrepreneur can reduce his losses with an exit strategy if the business is not doing well. The exit strategy also assures the creditors and investors that they are going to get their money back.

Exit strategies for small businesses

Small business owners can use diverse exit strategies to sell their stakes in the company. The type of exit strategy that suits the company best will depend on the size and nature of the business. The competitor profile and profitability are other factors that a company needs to consider while choosing its exit strategy. Here are the main types of exit strategies that small business owners normally use.

• Merger
• Acquisition
• Selling the business to a friend, acquaintance or family member
• IPO or Initial Public Offering
• Liquidation

Let’s take a look at IPO as an exit strategy.

What is an IPO?

An IPO or Initial Public Offering, is an exit strategy where private company shares or stocks are sold to the public. A company can raise equity capital through an Initial Public Offering that it can use to clear its debts. The IPO attracts public investors who help in raising the funds.

How does the IPO process work?

The IPO process involves a pre-marketing phase and the actual launching of the Initial Public Offering. A company looking to launch a successful IPO can issue a public statement to generate interest. Alternatively, the company can also solicit private bids for advertising to underwriters. These underwriters are responsible for performing due diligence, preparing documents, marketing, filing, and issuing of the IPO.

Steps in the IPO process

The main steps of the IPO process are described below.

Proposals: Underwriters create proposals for their services, offering prices, shares, and a probable time frame for an IPO.

Underwriter: The business chooses its underwriters and settles on the underwriting terms.

Creating a team: IPO teams are created that consist of underwriters, certified public accountants (CPAs), lawyers, and Securities and Exchange Commission (SEC) experts.

IPO Documentation: IPO documentation is prepared by compiling company information.

Marketing: A marketing plan is created for pre-marketing new stock issuance. Underwriters perform financial analysis to decide on a final price.

Board of Directors: A board of directors is formed to implement processes that help with recording and reporting accounting and financial details.

Conclusion

An IPO can work as an effective exit strategy for many entrepreneurs looking to liquidate their stakes in a business. At Basta & Company, we provide comprehensive support and guidance to companies looking to work on their IPO exit strategy. To get more updates on our accounting and tax services, visit our website at https://www.bastacpa.com/ or subscribe to our blog.