EXIT strategy

You may say to yourself, Why would I design an exit strategy when I still enjoy being in this business? Think of it this way: your business is an asset in which you have invested money. It has a revenue stream that supports your salary and possibly a sizable distribution of yearly profit. It should be increasing in value so that when the time comes, you will be able to harvest additional wealth. 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 the company. By not planning an exit strategy beforehand, business owners, their heirs, or their successors may find that the options in the future are limited. Some entrepreneurs think of their exit strategy as the means by which the business transitions to the next major stage. From this perspective, the entrepreneurs do not necessarily leave the business, but their role changes significantly.

Exiting Means Achieving Your Highest Goals

I began to see my exit strategy less as a termination, and more as a logical part of the high goals I had set for both my company and myself, stated Jennifer Lawton, owner of Just Books, Inc. I may pursue an acquisition, take the company public, merge with another concern, methodically increase sales to a higher level, or shoot for rapid 200 percent growth. In achieving any of these goals, I will have, in fact, exited. My company will have moved from one phase to the next, its exit from one level becoming its entrance to the next. The reality is that unless you define that end or change, your business may change in a way that wasnt in your plan. Choose an exit strategy that aligns with your business and personal goals. You should be thinking about your exit strategy the day you start your business, says attorney Garrett Sutton,

author of How to Buy and Sell a Business. By keeping the issue of exiting in mind as you build your business, you will have the flexibility to handle the exact strategy at the appropriate time. To prevent your business from taking a path other than the one you intended, you can integrate an exit strategy into your businesss vision, goals, and strategy. Just because you define you r exit strategy now doesnt mean you have to execute it anytime soon. Some entrepreneurs use their exit strategy three, five, or twenty years later. As the owner, you should determine the expected outcome, parameters, and results before you exercise the strategy.

Benefits of an Exit Strategy

Besides having peace of mind that you can exit the business profitably, other benefits of having an exit strategy in place include:

Protecting the value of the business you have built. Creating a smooth transition to your management team or family members. Generating a potential income for retirement or disability. Enhancing the future worth of your business. Reducing or deferring the potential tax impact on your estate, spouse, or family. Creating a strategic direction for your businesss growth.

Types of Exit Strategies

A successful business builds wealth for its owners by accumulating assets and building future profit potential. The most common favorable exit strategies are to sell the business, sell the assets of the business, merge it with another business, or sell shares in the business to the public at large. Unfortunately those entrepreneurs who do not plan an exit strategy will one day exit from their businesses unprepared. Some entrepreneurs exit the business for reasons other than wealth, retirement, or the desire to pursue other goals. Death, disability, family circumstances, and divorce from partners sometimes lead to an early exit. Without an exit plan, entrepreneurs who want a favorable outcome for themselves, their heirs, or their employees may find that their exit is other than what they wanted it to be.

in order to attract investment for your business, it's critical to supply an exit plan to investors so they can get their money back (hopefully with a healthy return) and exit your company. The exit strategy section of your business should also outline your long-term plans for your business.

Exit Strategies For Entrepreneurs

Crafting a business that stands up to Venture Capitalist scrutiny is not easy. Not only do you need a stellar idea, thorough financials and to be going after a market with huge potential but you also need to have an exit strategy. Venture Capitalists and Angel Investors are not just going to hand over hundreds of thousands of dollars to you without expecting something in return. At minimum Venture Capitalists expect a return on their investment and they usually expect that return within 3-7 years depending on your market and the predictions you made in your business plan. At some point in your business plan you have to outline how you will pay your investors back. Here are a couple of the most widely used exit strategies. IPO or Initial Public Offering This occurs when a privately held company offers common stock for the first time. A company is given a valuation and can sell shares of their company to the public according to that valuation. This is often used to generate a return for early investors or to generate large sums of cash for expansion. Acquisition If you have created a product or service that is truly unique, thriving and attractive to larger companies you may have the option to become acquired by another company. A large upfront sum if often paid out and the management team often stays on board with the new company to continue to provide guidance over the former company. Liquidation A very small amount of start-ups end up reaching the entrepreneurs dream. In this case liquidation is often a likely option. At some point, if you business is struggling it is the right idea to shut the doors instead of going after more funding.

Sell The Company Instead of a company being acquired by another and the management team still being involved another option for exit is selling the company to another owner. It is possible someone is interested in that field of work but does not want to lay down the ground work which you have already done. Thus a deal like this works for both of you.

Exit Strategies for Long-Term Involvement

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.

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.

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.

Exit Strategies for Short-Term Involvement

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 dollars, depending on the exchange and the size of the offering. However, the costs can often be covered by intermediate funding rounds.

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 youre looking to leave entirely, then the merger would likely call for the head of the other involved

company to stay on. If you dont want to relinquish all involvement, consider staying on in an advisory role.

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.

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.

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