Why Your Exit Strategy is an Essential Part of Your Business Plan 243

When you start your business for the first time, your goal will probably be to start making money as quickly as possible.

As you start to see some success from your strategy, you’ll begin to look into other things, like growing your company, developing into new markets, and make sure that your books stay “in the black” so to speak.

However, as time goes by, and you discover new opportunities in your life, you may decide that it’s time to think about your future, and what you’re going to do when you’re finished running the business you have now. After all, you can’t work forever. Even if you have no plans on shutting down any time soon, you might want to switch into a different industry or idea. That’s where an exit plan comes in.

Every Company Needs an Exit Strategy

An exit strategy is just another component of your business plan and something that sets you up for long-term growth.

Without the detail you need from your exit strategy to guide your business in the right direction, the chances are that you’ll end up working harder, not smarter. Think of all the other plans you put in place to help your business grow:

  • Marketing plans to help you reach new customers
  • PEO service plans to manage payroll and benefits for your employees
  • Merger and acquisition plans so you can steer your company’s growth.
  • Even if the thought of selling your business seems difficult to imagine right now, remember that every company needs an exit plan at some point. The only true variable is whether your exit is planned, or unplanned.

Here are a few reasons why you should take the “planned” route.

1.   An Exit Plan Gives You Something to Strive For

An exit plan doesn’t have to be a sad thing. It doesn’t mean that you’re giving up on your business. Instead, it indicates that you’re moving onto the next stage of your life – whatever that might be. The most common exit strategies involve ensuring that you get the most value possible out of your business, options to consider include:

  • An Initial Public Offering (IPO): An IPO allows you to sell a percentage of your company in the stock markets. This can be a great way to start selling off your business, without necessarily handing over full control of your business to anyone else straight away.
  • A direct sale: This is a more cut-and-dry approach to selling a company. You broker a deal with a suitable buyer and essentially leave the business in their hands. Sometimes, you may be required to stay on as a member of the board and offer advice for the growth of the company.
  • Mergers and Acquisitions: Finally, merger and acquisition deals mean that you merge your company with another brand, or another organization offers you money to combine your business with theirs. Sometimes, this is a great way to grow a business, and take the next step in your journey as an entrepreneur.

2.   Goals are Accomplished Easier When They’re Planned

As mentioned above, an exit strategy is just another plan in your business.

With your exit strategy, you can outline your road map to success, complete with ideas of what you want your business model to look like five, ten and twenty years from now. Ultimately, implementing an exit plan means thinking about what the actual “best result” would be for your company. Where do you want to be before you feel ready to sell, merge with a different business, or start something new?

Entrepreneurs should always start their company with several long-term goals for success. Just remember that it’s likely that these goals will change over time, according to adaptations in the market, and changes in your own personal objectives.

Having at least a basic exit plan in mind will ensure that you don’t go too far off track over the years as you move towards your end goal. Think of it like the compass that’s keeping you running in the right direction.

3.   Exit Plans Make you a Better Leader

Exit planning, just like any other form of strategic business planning, can help to make you a more effective leader as your business grows and develops.

For instance, whether your merging, retiring, or selling your business, your exit plan can help you to figure out how you’re going to keep your employees informed of the progression of the company, and set them up for success in the future. If you’re selling to another buyer, then can you work something into a contract that ensures your most loyal employees still have a job?

If you’re merging with another company, how can you make sure that the mergers you choose are moving your team towards the goals they wanted to achieve when they first joined your business? An exit plan not only helps you to think about the best route forward for you, but for the other people involved in the growth of your organization too.

4.   An Exit Plan Protects You Financially

A pricing plan and a good strategy for getting business capital aren’t the only parts of your business plan that are designed to set you up for long-term financial success.

A business is a complicated financial asset. Whether you’re selling the company or merging it with another brand and accessing ongoing compensation as a board member, it’s important to know how you’re going to protect your finances going forward. An exit plan is where you can detail all of the different things you’ll need to think about before you leave your business, including valuations, and legal contracts.

When constructing your exit plan, think about how you want this business to help you fund your retirement. Are you happy to stay on and help the company continue to thrive after you’re no longer leading the way? Or do you want to cut ties entirely with a significant cash settlement?

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Are You Ready to Plan Your Exit Strategy?

The best time to plan an exit strategy is as soon as you start your business.

Some entrepreneurs look at exit planning as a pessimistic process, but it’s actually a great way to pave the way for growth and development. When you have a clear vision of your future, you can make the right strategic steps to help your company grow faster, and more efficiently.

Planning an exit strategy isn’t about wishing for an end to your company as soon as it starts. It’s about making sure that you have the guidelines in place to guide you all the way from your initial launch point to your ultimate vision of success.

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Jock Purtle is the founder of Digital Exits and is an industry leader and expert on valuations of high growth internet companies, website valuations, and website brokerage. He was the runner-up in the Australian Global Student Entrepreneur awards and is currently living in America. He acquired his first company at the age of 19 and has since acquired numerous digital businesses over his career.