The sale of the firm, or merger and acquisition by another individual or organization are often-used entrepreneurial exit strategies. In fact, selling the firm to outside investors or buyers is the form of exit that two-thirds of entrepreneurs plan to use (Inc., 2008). The sales/purchases of small firms are much more successful than those of larger firms, which manage the transition successfully in only one out of three transactions (Kroll, 2000). The higher rate of success in small firm salea, mergers and acquisitions does not make the process easier. Planning for a sale should begin as soon as possible – by identifying possible sale candidates and how they would evaluate the business. This process may include: the entrepreneur’s removing himself from operations and bolstering management, to show the independent profitability of the firm; separating personal from business expenses to aid in clarifying financial statements for valuation; tightening operations and lowering costs; and settling litigation and conflicts that are outstanding (Posner, 1993).
Selling the firm allows the entrepreneur to extract the value from the firm in a single liquidity event. This method can be the most satisfying as it provides a significant immediate inflow of cash. If structured correctly it may also allow for the entrepreneur to minimize the negative effects of taxes on his/her receipt. A merger or acquisition can take the form of private sales, management or leveraged buyouts, or an employee stock ownership program. The various forms of mergers and acquisitions are almost always an easier and more successful process than pursuing an initial public offering. They also offer more immediate liquidity to the entrepreneur (Feld, 2009).