While planning for a business, we consider following points :
1. Business Model
2. Customer base
3. Earning Mechanism
4. ROI & Profitability
5. Exit Plan
Throughout the topic we will be discussing about the What, Why, When, How of the Exit Plan for the startup.
Starting Business is the most aspiring and dynamic feeling that one goes through the life, but here we will discuss about the other side of the coin, i.e. what shall you do in case your startup fails/does not meet the expected goals it was developed to achieve.
· First lets discuss What is Startup Exit Plan
A plan that is designed to reap the crops and move out in another plan of business is the Exit Plan, in common language closing your business/Selling your ownership.
· Why Exit Plan?
Our Business is developed to grow and give us return on our efforts and Investment, but in most of the situation is fails to do so, in all such situation where the business/startup is creating a hostile environment that is only reducing the funds with no further hope of recovery. In that situation one shall implement the Exit Plan.
Exit plan is designed and framed for the business to avoid complete loss of capital, save your hard earned money and safeguard your Reserves & Surplus, the aim is to lower your loss and safeguard your balance funds.
Exit plan is a WIN-WIN strategy that maintains the status quo upon business expenses and save your hard earned funds to invest somewhere else/in another business model that have potential to grow.
Implementing Exit plan is not a bad thing to do, however it requires certain knowledge on what strategy to adopt in order to come out of your old plan happily with bags of savings.
<<>> Getting your Business under Liquidation is the Final Step, and should never be brought in mind unless your all other plan & strategies have failed to give the result.
· When to use Exit Plan?
Exit plan shall be implemented when the environmental conditions both Internal & External to the business are adverse, and the condition of the Environment can be analysed only after certain Environmental Scanning.
If there rises certain factors both internal & External to the business and there is also combination of these factors, in such an adverse situation you shall ask whether there factors are impacting my business, if the impact is low you shall develop strategy to overcome these business issues, but however if the factors are high and there is chances of question of survival for the business, it is advised to exercise your Exit plan as soon as possible.
· How Exit Plan Works?
Suppose you started a business that was going smooth in the initial days but suddenly due to some internal and external factors you feel like you will be no longer in a position to compete.
This happens due to following situations
Situations Internal to Business
1. Ownership dilution
2. Share Distribution Issues
3. Business Ownership & C-Suite Internal politics
4. Low Employee Morale & High Labour turnover ratio
6. Fraud in the organisation
7. Lack of Internal Control System
8. Issue in implementing Business plan
9. Low Corporate Image & Brand Equity
10. Loss of Financer
11. Lack of Code of Conduct
12. Physical Asset Malfunctioning
13. Rise in Fixed Cost
14. Bad Financial Forecast
15. Excess depend on technology
Situations External to the Organisation
1. No Buyer in the market/Low(No) Purchasing Power
2. Change in Customer’s Taste and Preferences
3. Lack of Suppliers/distributors
4. Issue with Supply Chain Management
5. Rise in Competition/Strong Competitor
6. Unpopular Marketing Practices
7. Low Quality Products/Services
8. Superior Quality of Competitors Product/Services
9. Change in market leader
10. Downfall of Industrial trend
11. Political Change
12. Rigid Law
14. Technological Advancement
Although in all the cases/scenario business can compete for the initial days with both the factors but if the factors are a combination of External & Internal it is better advices to implement the Exit plan and save your left funds to avoid losing them further.
Exit Plan has certain steps & types involved:
1. Restructuring – Internal
2. Managerial Buyout (MBO)
3. Planning for IPOs
4. Restructuring – External (Acquisitions/Mergers/Sale)
5. Liquidation ( Legal Death)
Let us discuss types & steps involved:
When a company changes its core business model due to internal and external factors and need to adapt in order to survive in the current scenario and ultimately grow in the long run. This plan is helping if the external factors such as Technological Advancement, Change in Customer Taste and preference,etc. and Internal factors such as Mis Management, Fraud, Lack of Code of Conduct, Low Employee morale, business Policies ,etc. are impacting the business. Internal reconstruction is done when is chance of bounce back.
Under this method the business is re-engineered and business processes are redesigned to meet the current need and overcome prevailing policies, etc.
Share Split/Capital reduction/Buybacks/Creditors & Debenture holders setting off, etc is implemented in this process.
We assist in Internal restricting and design/develop certain strategy to bring the business back on track of success, we also do all type of accounting, Auditing and allied assignment to reflect the result of the plan of Internal restructuring.
Managerial Buyout (MBO) :
MBO is a transaction where a company’s management team purchases the assets and operations of the business, Generally done so a company can go private in an effort to streamline operations and improve profitability.
Initial Public Offering (IPO) :
In an IPO, you sell a portion of your company in the public markets. You and your management team typically remain in place for a period of years, your investors and managers may be able to sell some stock, and your company continues to operate much as it has in the past. Further certain new guidelines and regilations are imposed on the company by way of IPO.
External Restructuring :
All the Assets & Liabilities of the company are usually discharged and handed over to the new company.
Acquisition : When a big business buys a small business and takeovers its all business activities and agrees for a price called Purchase Consideration, The purchase consideration is discharged by way of Shares/Cash, etc. after acquisition the company having higher brand value prevails, however the case may not be always same as the rand equity also plays role here.
Ex: Hutch became Vodafone but Flipkart remained Flipkart even after acquisition by Walmart.
(if the change in ownership, ie buying of shares is done with the permission of the BOD, it is called acquisition and in all other case it is called takeover)
Amalgamation : When two or more companies comes together to form a new company and the new company buys share of the old company.
Ex: Ram Ltd & Shyam Ltd amalgamated to form Ram & Shyam Ltd.
In the final step when all other techniques of the Exit plan has ben implemented but did not worked to give any suitable and effective outcome, the Management and Stakeholders demand for liquidation, where liquidator is appointed by the court and all the Assets & Liabilities of the company are discharged.
If you have a business that is now not in a position to meet the current market needs or has issue that is impacting adversely to your savings(Funds of Promoters), you are in a place where you need the change the object of the company or try reconstruction.
Remember, if you are unable to run or cope with the current adverse situation it is never advised to go directly for liquidation, because..
1. You will get nothing in return.
2. Going Concern will cease to exist and your Assets will be valued at Terminal Value
3. You will have to discharge your liability and in that course you will get nothing in return.
4. You will have to pay all your pending tax and accordingly discharge your debts with all interest.
5. There will be no value of any intangible Asset and your years of struggle and time devotion in the business will go in vein.
6. Liquidation & Legal expenses to be borne by you.
In order to avoid such situation and get some return based on your valuation, you can offer your startup/business for sale to the buyer who are ready to buy at your price depending upon your valuation and market share.
Benefit of Selling your Startup/Business :
1. You will get money in return for the shares
2. Asset will be valued at book value or Market Value
3. You will get price of Goodwill
4. Your years of effort and Standing cost will be valued and Valuation will be determined.
5. There will be no loss of employee and business will continue its operation (although you will loose your ownership)
If you have a running business and you are willing to sell the same you can contact us for the work, we will do valuation for your company and on a nominal commission help you in getting a good buyer for your business, The Purchase consideration will be decided mutually by you and the buyer and the valuation will be done by us.
For more info Contact us or send your query to firstname.lastname@example.org