Why An Exit Strategy Is A Critical Component Of Your Business Plan
If you’re launching a company for the first time, or you’ve been trading for a few months now, there’s a good chance you haven’t given much thought to an exit strategy.
The chances are you’re too busy planning a successful future to worry about what happens when it all comes to an end.
However, the truth is that businesses fail for a number of reasons. Even if your company survives the ups and downs of an unpredictable marketplace, you’ll eventually need to think about how you’re going to come out of your journey on top.
An exit strategy isn’t a negative thing. It doesn’t mean quitting on your brand when the going gets tough or running in the other direction when sales take a dip.
And even if your business is currently only a side hustle – it’s still something you should consider.
Instead, it’s about making a lucrative transition in your life as an entrepreneur.
What is an exit strategy?
If you’re serious about growing a truly successful company, then an exit should be something you’re always planning for. Think of it like this – your company is an important asset that you invest money into. It pays your bills, and it may even pay the wages of various employees too.
As your company continues to grow, it should be building value over the years, giving you a nest egg to tap into at a later stage.
Your exit strategy is your method of harvesting the wealth you’ve been growing over the years.
It’s about making sure that when you’re finished running your company, you decide to retire, or you simply want to do something different, you’re going to get the best return on your investment.
The best way to look at an exit strategy isn’t as a way of terminating your company or saying goodbye to all your entrepreneurial dreams. Instead, it’s about planning the next step in your logical path towards success.
You might decide to take your company public, connect with another brand, or even pursue an acquisition. None of those things means that you’ve failed as an entrepreneur – but they do mean that you’ve officially “exited” your initial business structure.
Moving through phases as an entrepreneur
In some respects, an exit strategy involves moving your company from one phase of existence to another. If you’re wondering why you need a strategy for that move – the answer is simple.
Without a clear vision of your future, it’s hard to know whether you’re moving in the right direction.
An exit strategy gives you a vision to work towards, and without one, you could end up seeing your company change in a way that’s outside of your preferred plan.
Ultimately, the goal of an exit strategy should be to choose a path that aligns with your goals as an entrepreneur.
Are you hoping to grow bigger and better in the years to come? Or do you want to keep your company small, and switch to something new when it starts to evolve?
By keeping the exiting issue in mind as your brand grows, you’ll ensure that you have the flexibility you need to handle your evolution as it arrives.
The benefits of having an exit strategy
Just because you have an exit strategy doesn’t mean that you’re planning on using it any time soon. For instance, people write a will for themselves, when they get married and have kids, but that doesn’t mean that they’re going to rush out and get hit by a bus.
Some entrepreneurs launch their exit strategy within three years, whereas others don’t come back to it until ten, or even twenty years later. However, having an exit plan in place comes with a lot of benefits.
Besides the obvious peace of mind and comfort that comes with knowing where your company is headed, your exit strategy can:
- Help you to protect the value of the business you’re building
- Ensure an easy transition for your stakeholders and management team
- Generate income for your retirement
- Improve the future value of your business
- Reduce your possible tax impact on your estate when you change your entrepreneurial plan
- Create a strategic direction for your organization.
Common exit strategy options
Most businesses, no matter which industry they start in, are designed to build wealth. Their aim is to accumulate as much value as possible for stakeholders and develop future earning potential. Often, the most common exit strategies include options to get rid of the business, sell the business assets, or merge it with another company. Some exit strategy options include:
An IPO (Initial Public Offering): An IPO refers to a deal in which you sell of a percentage of your company within the public stock markets. The decision to “go public” can open a lot of financial doors for your business. A lot of start-ups have gone down the IPO route when they needed to obtain major funding or expand their company.
Merger & Acquisition: An M&A deal involves merging your business with a similar or like-minded company. It could also mean that another business comes and offers you money to integrate your company with theirs. Mergers can be an incredibly effective way to gain market share and improve the value of a business.
Direct Sales: Some entrepreneurs decide to exit their business by brokering a deal with a suitable buyer. This isn’t a merger because it doesn’t involve fusing two companies into one. It simply means that you give up complete control of your company to another entity in exchange for a financial buy-out.
You could also consider selling your company to a “friendly” buyer. This can be a better option than selling to someone you don’t know, as it means that you can keep checking in on how the brand is evolving after you stop working on it.
For instance, you could sell to a family member, key employees in your team, or partners or co-founders. However, selling to a friendly buyer does mean that you’re less likely to get the best price for your venture.
Why it’s time to plan your exit strategy
Planning an exit strategy isn’t about wishing for the end of your company or jinxing your present success. It’s about making sure that you’re prepared for anything with a clear path towards your future.
Often, the entrepreneurs who launch their firms without an exit strategy end up having to exit from their business without a plan to get the best return on their investment.
Without a strong plan in place, entrepreneurs hoping for a good outcome for themselves, their employees, or even their heirs might find that their hard work doesn’t pay off as well as they’d hoped.
By planning for an exit as soon as you start building your company, you ensure that when your firm comes to an end, it does so on your terms.
Related reading: The Complete Guide To Selling A Website.
