Why an Exit Strategy is an Essential Part of Your Business Plan
Business owners who are just starting their new venture are trying to make money as quickly as possible. Once the business gets going, however, you will start to look at ways to develop your company, such as delving into new markets, so your margins remain profitable.
At some point, you may find your life is going in a different direction and may have other intentions for your future. The question of what you will do once you are finished running the business will need to be answered. As much as you may love being a business owner, you may want to retire in the not-so-distant future. Or, even if you do not plan on making any changes anytime soon, you may decide to switch careers. This is where an exit strategy becomes critical to a business.
Why You Need an Exit Strategy
If you are planning a vacation, you would plan where to go, how to get there, and where to stay, correct? Why not do the same for your business? An exit strategy should be part of every organization’s business plan for long-term growth and planning. An exit strategy guides your business to maximize opportunities. While not every business has this type of strategy, it should be as standard as some of the other strategies put in place, such as marketing and sales strategies to get more customers, merger and acquisition plans to grow the company, or PEO service plans to manage payroll and benefits for employees.
Selling your business might not be in the plans now, but it will be at some point in the future. It is just a matter of whether the exit is planned or unplanned. The benefits of a planned route make the transition seamless.
1.) An Exit Plan Sets Goals
An exit plan can be motivation to hit certain goals. It is an indication that you are moving to the next stage of your life and should create a plan for it. A detailed exit strategy results in you getting the most value from your business. Some options to consider:
- Initial Public Offering (IPO): An IPO enables you to sell a percentage of your business in the stock markets. Many business owners use this as a way to start selling parts of their business without having to give up control of it.
- Direct Sale: This is a standard sale of a company. A buyer offers a certain amount for the business and you sell control of it to them. Sometimes, the original business owner remains part of the company as a board member to offer historical information and advice on how to grow the business.
- Mergers and Acquisitions: You can also choose to merge your company with another one. A company offers a certain amount of money to combine businesses. This can be a way to grow a business and move into a different space with your company.
2.) Planned Goals Have a Better Chance of Being Successful
You have probably heard the advice that writing down your goals leads to a great chance of success. Where do you want the company to be before you are ready to leave, sell, or merge? An exit strategy is your road map to success, including your business model, for now, next year, and in the future. An exit plan forces you to think about what the best plan of action is for the company.
Entrepreneurs should also have long-term goals for the business. They will change over time depending on personal goals and market conditions, so it is important to review them periodically. An exit plan will keep you on track in achieving your goals throughout your career.
3.) Make Informed Business Decisions
Exit strategies aid in decision making. What you ultimately want to do with the business dictates the type of strategy you will use. It creates a timeline for the investment strategy of the business. For example, strategies will differ if you want to grow a business to hand down to future generations than if you plan to fold the business in a few years. An exit strategy forces intentional strategy choices to devise an end-goal to grow your wealth and be able to afford the type of lifestyle you would like in your later years. Investors don’t enter into an investment without a strategy for getting out, and this is no different.
4.) Exit Plans Enhance Leadership Skills
Just like any other form of strategic business planning, exit planning makes you an effective leader as your business grows and changes. For example, if you are merging or selling your business, an exit plan will help you determine how to inform your employees about the direction of the company and how they can be successful in the future. If you are selling the company to another buyer, you may be able to protect your employee’s positions. Similarly, if you are merging the company, you can make sure your employees are still able to achieve their goals as well. An exit plan can be just as beneficial for other people who are involved in your organization.
5.) Protects You Financially
Business plans can be complex. A pricing plan and a strategy for getting business capital will set you up for long-term financial success. But these are not the only ways to protect your financial assets. Whether you are selling or merging it with another, you need to know how you are going to protect your finances in the future. An exit plan lays out all of the options for leaving your business, including valuations and legal contracts.
A profitable business can fund your retirement. Your goals for later in life can help you decide if you would like to stay on with your business in some capacity or if you want to sell outright and take a cash settlement.
Business owners should start planning an exit strategy along with their initial business plan. If you did not, it’s not too late to come up with one to create a clear direction for business growth. A path for the future allows entrepreneurs to make the right steps to optimize the company and grow it faster. The guidelines that are put in place will follow you throughout your business days.
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