You Need An Exit Strategy

The first moment you should be considering your exit strategy is when you are writing your business plan. Why?

Everything comes to an end eventually. It makes sense to plan the end so it serves your best interests. Are you planning on passing the business down to your children? Thinking about growing it up and then selling it? Will you sell it to your employees, a key employee, a partner, all of them as a group? Will it go on the market for sale to the best offer? Will you be bought out by your competition? All are valid options but one should consider these from the very beginning and include the exit strategy in the start-up plan.

If you have any investors they are very likely to want to know what the exit strategy is, as that may be the only opportunity for a return on their investment. In fact, if your business plan is predicated on raising capital, the exit strategy is as important to an investor as the business plan you are promoting and raising money to implement. It makes sense to identify and develop the exit strategy from the beginning as this should be as much a part of the overall strategy as the launch. Many business plans without an exit strategy are rejected for that very reason, no exit strategy.

Here are some options:

1. Hand the business over to your children. Include a training program for them and allow them to gracefully and slowly step into management positions as they learn the business from the ground up. Perhaps this is your retirement income as your children take over and you consult with them. Perhaps you finance the sale, allowing them ease of entry while you enjoy a long-term retirement income.

2. Sell to competitors. Know them, talk to them, develop a relationship with them. Compete carefully but vigorously and it will be natural merger down the road.

3. Sell to a key employee. Identify the person early and help them get to the purchase agreement.

4. Sell to all your employees. This is a bold and difficult move as many will not want any part of it. Find out who is in and who is not and how this will be financed.

5. Sell on the open market through a broker or through your own efforts.

6. Sell to your largest client. Sometimes this is a natural transition.

7. Liquidate assets and close the door.

Clearly, each option listed above should include a strategy to maximize the potential for success. First, you have to identify your best option, then you need to create a plan that supports the conclusion you are projecting. Lastly, you must implement the strategy meaningfully.

Other questions to consider:

1. When will this happen? Twenty years, ten years, five years?

2. How much valuation of business opportunity, capital equipment, receivables, inventory?

3. Are there key employees who must remain involved?

4. How long will you stay on board to support the transition? What will your duties and commitment be?

5. How will the buyer finance the acquisition? Will you assist in this?

7. Is there real estate involved and are you selling it or renting it?

8. How do you prepare for the sale? Do you slowly or rapidly replace the capital equipment before the sale takes place? Do you reduce inventory, aggressively collect receivables, fire some employees or all of them?

There is much to be considered before you start the business, as well as when the time comes to exit it. Think about it now, because it is very important.