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Best Options For Entrepreneurs To Cash Out

Anthony Williams By Anthony Williams 9 Min Read

Even though starting a business is sometimes risky, business owners feel that it is really worth the effort. But why do people want to be entrepreneurs and set up their own business despite the immense risks?

What really motivated them to take that route? Among the top motivations of turning an entrepreneur is a quest for a greater sense of independence. Another thing is to pursue a passion, and dissatisfaction with conventional corporate life.

The State of Small Business survey of over 2,600 existing and aspiring business owners carried out by LendingClub in partnership with Guidant Financial revealed these not-so-surprising facts.

Even though current business owners rated their happiness index as being eight on a scale of 1-10, many owners of successful businesses, seek to cash out their startups either to start all over again or to pursue a different dream.

How entrepreneurs can easily cash out

Investment Required For a Startup Launch

The timing of a profitable exit from the startup is often related to the investment that has gone into getting the startup up and running. Modern technology together with a trend for starting lean has meant that nowadays it has become easier than before to establish a business.

According to Expertise, a micro business can take only $3,000 to set up while a home-based franchise can be set up for $2,000-3,000. Of course, depending on the nature and the scale of the business, some entrepreneurs can require substantially more funds. A quick look at the different options available to entrepreneurs for cashing out:

#1]. Selling Off the Business Assets

The easiest option of cashing out a small business is to sell off the physical assets. You may want to do this if you find that your business has run into a block or you are simply too tired of the daily struggle of keeping it afloat and want to call it quits.

Even a difficult economic scenario or a competitive marketing environment may mean that the best policy is to sell off the real estate, plant and machinery, accounts receivable, buyer contracts, and even intellectual property rights like patents and licenses.

 

#2]. Go the IPO Route

For many startup owners, going in for an IPO when the business reaches a reasonable size was the ultimate dream of becoming a millionaire. However, the virtual nature of many businesses has meant that businesses can often become public and raise cash from the market while still losing tons of money.

If your business idea can catch the fancy of the investing public, you can go in do an initial public offering and rake in the millions by selling off your stake.


#3]. Sell Off the Business

More and more startups are being acquired for handsome sums by larger companies who are focused on fuelling their growth with a larger market share or acquiring a different technology or product profile. The social media and information technology spaces have seen a number of acquisitions that have made multimillionaires of their
founders.

In many cases, the original founder stays on in an advisory role for some more time to make the transition and integration better. Some founders are also known to make an offer to the employees to buy the business as a going concern.

Individual employees can buy the equity with their savings or even take personal loans from a private lender like liberty lending. Typically, startup acquisition takes months to complete because of regulatory compliances and due diligence requirements.


#4]. Secondary Sale

Another viable way of cashing some part of the business is to sell a portion of the equity held by the founders to new investors who buy into the company with another round of equity financing at a mutually agreed upon price.

Depending on the situation, some startup owners may even decide to incentivize the equity sale to the new investors by offering the shares at a discount to the valuation. This kind of an exit policy is being increasingly seen in the venture capital space as the startup progress from the Series B funding to the Series D financing rounds.


#5]. Raising Debt for Equity Buybacks

There have been numerous instances of entrepreneurs that have cashed out earlier. I meant those who have not been able to bear the direction their company has been moving in thereafter.

They have tried to climb back aboard by reverse engineering. It’s a process of equity dilution by using debt financing to buy back the shares of their own company. The buyback will enable them to gain control over the business again. Furthermore, they will be able to lead it in the direction of their original dreams and ambitions.

The second time around, the founders are often able to steer the company in a more rational manner. This is because they no longer have to deal with the same economic pressures that they had originally encountered while starting up.


#6]. Focus On Generating Profits

Most startups try to focus on growing at the fastest possible rate in order to get good market valuations. However, it can be a good idea to put a priority on generating the maximum profits instead. If you focus on generating sales revenues and net profits every quarter, you can give yourself a well-deserved raise. Also, you can perhaps give yourself some generous year-end bonuses without having to dilute your equity or exiting the business.

However, for business operations of a reasonable size, most entrepreneurs can recoup their initial investments by cashing out. With the available money, they can choose to recapitalize the business. Also, they can fund a different venture or pay off the credit cards that have accumulated dues.

 

Other things they can do include rewarding their most loyal supporters including family and friends. However, the best thing is to focus on taking the business to the next level without losing management control.

Conclusion

As is evident, there are multiple options for entrepreneurs to cash out their ventures. However, it is also given that the earlier that you start planning the exit, the more prepared you will be and the more profitable will be the cash-out.

 


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Guestpost Contributor
Kelly Wilson is an experienced and skilled business consultant and financial advisor in the USA. She helps clients both personal and professional in long-term wealth building plans. During her spare time, she loves to write and share her knowledge and experts tips with her readers.
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Tony is a blogger, content creator, SEO marketer, and internet entrepreneur. He writes articles on various topics. Follow him on Twitter.
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