The document discusses harvesting and exit strategies for entrepreneurs. It defines a harvest strategy as seeking to reduce investment in a business by extracting cash from operations. It outlines reasons for exiting a business like lack of profits or new opportunities. The document presents several exit strategies for both long-term involvement, like selling shares to partners, and short-term involvement, such as going public, merging with another company, or being acquired. It also discusses preparing for and executing an exit through valuation, documentation, and negotiating a sale.
The document discusses harvesting and exit strategies for entrepreneurs. It defines a harvest strategy as seeking to reduce investment in a business by extracting cash from operations. It outlines reasons for exiting a business like lack of profits or new opportunities. The document presents several exit strategies for both long-term involvement, like selling shares to partners, and short-term involvement, such as going public, merging with another company, or being acquired. It also discusses preparing for and executing an exit through valuation, documentation, and negotiating a sale.
Copyright:
Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPT, PDF, TXT or read online from Scribd
The document discusses harvesting and exit strategies for entrepreneurs. It defines a harvest strategy as seeking to reduce investment in a business by extracting cash from operations. It outlines reasons for exiting a business like lack of profits or new opportunities. The document presents several exit strategies for both long-term involvement, like selling shares to partners, and short-term involvement, such as going public, merging with another company, or being acquired. It also discusses preparing for and executing an exit through valuation, documentation, and negotiating a sale.
Copyright:
Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPT, PDF, TXT or read online from Scribd
Prof. R.S.Mathur Stephen Covey in his book, ‘The Seven Habits of Successful People.’
• "Begin with the end in
mind,” Wednesday, December 1, 2010 Prof. R.S.Mathur 2 Definition… • Harvest Strategy is also known as ‘asset reduction strategy by which the entrepreneur seeks to reduce the investment in a business by extracting as much cash out of its operation
Wednesday, December 1, 2010 Prof. R.S.Mathur 3
Entrepreneurial Journey • Is a journey and not a destination. • The challenge and exhilaration of the the journey gives the greatest kick to the entrepreneur. • Walt Disney said it best, “I don’t make movies to make money. I make money to make movies.” • It is the thrill of the chase that counts! Wednesday, December 1, 2010 Prof. R.S.Mathur 4 Entrepreneurial Business ‘Cycle’
• Entrepreneurs live for the struggle of
launching their businesses. • Decisions made on day one can have huge implications down the road. • It's not enough to build a business worth a fortune; you have to make sure you have an exit strategy, a way to get the money back out. Wednesday, December 1, 2010 Prof. R.S.Mathur 5 EXIT STRATEGIES-Why & When • The final portion of your business plan outlines your exit strategy. • It may seem odd to develop a strategy this soon to leave your business, but potential investors will want to know your long-term plans. • Your exit plans need to be clear in your own mind because they will dictate how you operate the company. • For example: 1. if you plan to get listed on the stock market, you’ll want to follow certain accounting regulations from day one. 2. If you plan to pass the business to your children, you’ll need to start training them at a certain point. Wednesday, December 1, 2010 Prof. R.S.Mathur 6 Reasons for Exit • Lack of profits • Loss of interest • Future prospects • Dissolved partnership • Growth prospects • Other opportunities • Personal reasons • Favourable economic conditions Wednesday, December 1, 2010 Prof. R.S.Mathur 7 Long Term Preparation • Focus • Large customer base • Diversified customer base • Regulatory compliances • Land documents • Contracts • Management
Wednesday, December 1, 2010 Prof. R.S.Mathur 8
Short Term Preparation • Valuation • Update books • Supporting documents • Take tax advice • Get a team in place • Continue business as usual • First impressions
Wednesday, December 1, 2010 Prof. R.S.Mathur 9
Some available strategies for entrepreneurs: 1. Exit Strategies for Long-Term Involvement 2. Exit Strategies for Short-Term Involvement
Wednesday, December 1, 2010 Prof. R.S.Mathur 10
Exit Strategies for Long-Term Involvement 1. Let it run dry: • This can work especially well in small businesses like sole proprietorships. In the years before you plan to exit, increase your personal salary and pay yourself bonuses. • Make sure you are on track to settle any remaining debt, and then you can simply close the doors and liquidate any remaining assets. • With the larger income, naturally, comes a larger tax liability.
Wednesday, December 1, 2010 Prof. R.S.Mathur 11
Exit Strategies for Long-Term Involvement 2. Sell your shares: This works particularly well in partnerships such as law and medical practices. • When you are ready to retire, you can sell your equity to the existing partners, or to a new employee who is eligible for partnership. • You leave the firm cleanly, plus you gain the earnings from the sale.
Wednesday, December 1, 2010 Prof. R.S.Mathur 12
Exit Strategies for Long-Term Involvement 3. Liquidate: Sell everything at market value and use the revenue to pay off any remaining debt. • This is a simple approach, but also likely to reap the least revenue. • Since you are simply matching your assets with buyers, you probably will be eager to sell and therefore at a disadvantage when negotiating.
Wednesday, December 1, 2010 Prof. R.S.Mathur 13
Exit Strategies for Short-Term Involvement
Wednesday, December 1, 2010 Prof. R.S.Mathur 14
Exit Strategies for Short-Term Involvement 1. Go public: The dot-com boom and bust reminded everyone of the potential hazards of the stock market. • While you may be sitting on the next Google, IPOs take much time to prepare and can cost anywhere from several hundred thousand to several million rupees, depending on the exchange and the size of the offering. • However, the costs can often be covered by intermediate funding rounds. Wednesday, December 1, 2010 Prof. R.S.Mathur 15 Issuing an IPO • Choose investment banker. • Select underwriter for the issue • File registration document with the exchange • Come out with a ‘red herring’ prospectus indicating initial price range • Go on a road show • Set final offer price • Get listed on appointed date
Wednesday, December 1, 2010 Prof. R.S.Mathur 16
Listing Norms at BSE • The minimum post-issue paid-up capital of the Company shall be Rs. 3 crores; and • The minimum issue size shall be Rs. 3 crores; and • The minimum market capitalization of the Company shall be Rs. 5 crores (market capitalization shall be calculated by multiplying the post-issue paid-up number of equity shares with the issue price); and • The minimum income/turnover of the Company should be Rs. 3 crores in each of the preceding three 12-months period; and • The minimum number of public shareholders after the issue shall be 1000. • A due diligence study may be conducted by an independent team of Chartered Accountants or Merchant Bankers Wednesday, December 1, 2010 Prof. R.S.Mathur 17 Benefits of an IPO • Access to risk capital • Increased public image • Stock options • Facilitates M & A activity • Liquidation
Wednesday, December 1, 2010 Prof. R.S.Mathur 18
Responsibilities on Getting Listed • Sharing corporate control • Sharing financial gain • Managing shareholder value • Sharing strategic information through periodic reporting
Wednesday, December 1, 2010 Prof. R.S.Mathur 19
Exit Strategies for Short-Term Involvement 2. Merge: Sometimes, two businesses can create more value as one company. • If you believe such an opportunity exists for your firm, then a merger may be your ticket to exit. • If you’re looking to leave entirely, then the merger would likely call for the head of the other involved company to stay on. • If you don’t want to relinquish all involvement, consider staying on in an advisory role.
Wednesday, December 1, 2010 Prof. R.S.Mathur 20
Exit Strategies for Short-Term Involvement 3. Be acquired: Other companies might want to acquire your business and keep its value for themselves. • Make sure the offered sale price meshes with your business valuation. • You may even seek to cultivate potential acquirers by courting companies you think would benefit from such a deal. • If you choose your acquirer wisely, the value of your business can far exceed what you might otherwise earn in a sale.
Wednesday, December 1, 2010 Prof. R.S.Mathur 21
Exit Strategies for Short-Term Involvement 4. Sell: • Selling outright can also allow for an easy exit. • If you wish, you can take the money from the sale and sever yourself from the company. • You may also negotiate for equity in the buying company, allowing you to earn dividends afterwards — it clearly is in your interest to ensure your firm is a good fit for the buyer and therefore more likely to prosper
Wednesday, December 1, 2010 Prof. R.S.Mathur 22
Seller Financing Benefits to seller: Risks to seller: • The buyer may be • Business may fail before prepared for a higher the buyer makes full price on such terms repayment • It assures the buyer that • The buyer may decide the seller is convinced of not to make any further the long term viability of payments the business • The seller might get • The seller gets further persuaded to participate profits by way of the in the business as well interest on the investment • This may be a good way to profitably park funds for a while Wednesday, December 1, 2010 Prof. R.S.Mathur 23 Seller Financing Benefits to buyer: Risk to buyer: • It is an easy and • There may be a lot of readymade source of interference from the debt finance seller. • It might be easier to • The buyer may end up deal with the ex-owner than to deal with any paying much more than other commercial the fair value of the borrower business. • The seller may be persuaded to offer guidance and direction
Wednesday, December 1, 2010 Prof. R.S.Mathur 24
The Sale Process • Authorisation from partners/directors • Get legal or accounting team in place • Review records and identify issues • List assets and liabilities • Draw up the agreement • Finalise the deal • Transfer the assets