Every entrepreneur should have an exit strategy in place.
No matter what stage your company is in, it’s important to start thinking about an exit plan – after all, your business is an asset that you’ve invested money into, and it’s important that it continues to grow in value so you can get the most out of it when the time comes.
But where do you start? What should your exit strategy look like?
We’ll explain some of the basics and provide a simple, easy-to-follow three step plan.
Planning an exit strategy is the most commonly overlooked consideration of a business strategy, yet the exit strategy plays a key role in determining the strategic direction for your company. This is because by not proactively planning an exit strategy, business owners, their heirs or their successors may find that future options are limited.
Many entrepreneurs think of their exit strategy as the means by which the business transitions to the next major stage.
From this perspective, entrepreneurs don’t necessarily leave the business, but their role changes significantly. This is why it’s important for you to carefully evaluate your business plan, strategy and vision and determine what a favourable exit strategy looks like for you and your business.
What do you want to achieve with your business?
What are your priorities?
What are the key factors that will determine your success?
Once you have a clear understanding of your vision, you can start developing a plan that will help you achieve it.
Your exit strategy should be developed with your goals in mind.
It’s important to set realistic goals that are achievable, but it is equally important to plan for the future and establish what options you will have available when it comes time to move on.
Exactly how much investment you require for an exit strategy varies between businesses. Generally speaking, your exit strategy should be something that you can realistically achieve in a reasonable time; between three and five years is ideal.
An exit strategy isn’t just about selling your business, though that’s probably the end goal for most entrepreneurs.
Your vision and values will determine what options are available to you and how they may best suit your needs. For example, if your long-term goal is to pass on your company to a family member or a trusted colleague, you need to be sure that it’s in the right position to do so.
Step 1: What stage is your business at?
If you already have a clear idea of where you want your business to go and a strategy for how you’re going to get there, the easiest way to plan your exit is by working backwards from that ideal state. Where does your business need to be when it comes time for you or your heirs to sell? If you have a detailed strategy with financial projections in place, the answer to this question is likely pretty straightforward. If not, it’ll be worth investing some time into starting that process now.
One of the most enjoyable parts of running your own business is that it’s yours – but if you want to sell your business when the time comes, you need to remember that it’s an asset. Start thinking about your business in terms of its market value and how you can increase that value. This may include things like developing a strong brand, expansion into new markets or even just good financial management.
Step 2: What are your goals?
This is where you need to start thinking about what you want to achieve with your business. Do you want to retire and live off the proceeds? Pass it on to a family member or colleague? Sell it and walk away with a massive payday?
Your exit strategy will be tailored to your specific goals, so it’s important to have a good understanding of them. Once you know what you want, you can start thinking about how to get there
Step 3: What are your options?
Now it’s time to start thinking about the different ways you can exit your business.
The most common methods are selling outright, taking on a partner, or transitioning to another stage of the business. There are pros and cons to each option, so you need to carefully consider them before making a decision. Selling your business can be a difficult process, so you need to be sure that you’re ready for it. On the other hand, transitioning to another stage of the business can be a great way to keep things in the family.
Some of the most common options for exit strategies include:
Selling your business outright
Partnerships
Mergers and acquisitions
IPOs (Initial Public Offerings)
‘Buy and build’ strategy.
The best exit strategy is going to be specific to you, your goals, and your business.
If you’re interested in learning more about strategic business planning, including exit strategies, contact our business service experts. We have experience in designing strategies for aspiring, early stage, and established entrepreneurs.
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