Getting your business up and running is an exciting time, at the same time stressful. You may think you are ready to go, but if you haven’t considered an exit strategy yet, then your business plan is severely lacking. Great entrepreneurs plan ahead for a time their business is no longer viable, and you should, too.
Sometimes, the thrill of starting a business often overshadows the truths as to why having an exit strategy is so vital. One reason why you should prepare for it is that outside investors will expect to collect their returns, regardless of whatever issues attribute to ending the venture.
Another smart reason to plan ahead is loss of interest. Entrepreneurs are notorious for their addiction to the thrill of the chase. They tend to find something else and build another startup after getting things off the ground and making it successful. If you’ve got an exit strategy in place, then you’re free to move on without much worry.
Planning an exit strategy should never be seen in a negative light. It is merely a way of preparing for a bad situation, rather than struggling to get out of one. Also, it allows you to run your business under less stress because you know that you have something to fall back on just in case things get out of hand.
Run a “Lifestyle Company”
Running a lifestyle company entails minimizing your dependence on outside investors and drawing out its revenues for your own income. This works for entrepreneurs who never intend to grow their company, but rather want to keep things small and pay themselves handsomely.
It’s not a good option if you aim to scale your business because you’re keeping the revenues to yourself and not investing it back. Investors won’t be too happy to do business with you if your goal is to take. Also, such a case doesn’t need any intricate exit strategy since you’ll just have to run the company and take funds as necessary.
The one major disadvantage of running a lifestyle company is that there could be some major tax issues to deal with, especially if you’re pulling in seven figures. Also, you have to be careful with pulling out funds you might need at a later date, as that could be detrimental to your company’s day-to-day operations.
Opposite to running a lifestyle company, there are situations when you might just choose to simply walk away and dissolve the business altogether. What happens next is that all the profits must be used to repay creditors and outstanding debts. This process usually happens to any company that is insolvent, but it would be a waste to completely shutting down the business when you’ve put in so much effort in building it. Moreover, your assets can be worth more than how much you’ll get by liquidation. Depending on what industry and situation you’re in, this could be an exit plan that might be beneficial for all parties involved.
As one of the most common exit strategies, acquisition is a means to a very profitable end without having to see the doors to your company close forever. You can do this by having similar larger companies buy your company to combine it with theirs. To get a good deal, you need to negotiate terms and sell to the highest bidders at whatever your perceived value is to them.
Choosing the right buyer can earn you far more than your actual worth or yearly income. Especially if your company has great potential for growth, a lot of larger companies would fall in line and bid.
The trick is to find a company that fits your business model and goals, and see if they would like to merge with your business. There are a few larger companies that are looking for new markets and products your business could offer, as well as any perks you have that they haven’t touched on—giving both parties a win-win.
If you deal with the wrong company; however, it could become damaging to both parties involved so make sure that your culture works together with the merger company. Transitions can also become difficult for everyone. You should also cover anything that could stress your employees with regards to switching managements for a smooth sailing company merge.
This exit strategy is different from acquisition but still similar when it comes to getting a cash out. It’s the perfect option for entrepreneurs who have an emotional attachment with the company, its patrons, and employees. It is another way to ensure your efforts won’t fade into nothingness.
Often, the sale of the company either goes to a loyal outside affiliate, a customer or even an employee. A smaller business might find that an internal employee, who holds the same values and vision for the company is the perfect candidate to take the company into the future.
Be wary of selling to a close family member because it could eventually cause conflict and stress, especially if the business is a cash cow.
Friendly sales usually involve businesses like the corner deli or bar that the neighborhood came to love and appreciate over the years. Selling your business is like a legacy you leave behind, but remember that once you sell it, it’s out of your hands.
Whatever industry you’re in, having an exit strategy right from the start will save you a lot of hassle later down the road. Give it some thought and never be hasty. Also, keep in mind that whatever you choose, at least you leave yourself options.
You could even think about different scenarios and prepare for how you would handle them in the future. Keep in mind that an exit strategy is not bad—it’s a way of protecting your future as an entrepreneur.