The legendary Neil Armstrong once said, “You only have to solve two problems when going to the moon: first, how to get there; and second, how to get back. The key is don’t leave until you have solved both problems.”
A lot of businesses get caught up in the excitement of starting a business and focus on the “how to get there”, instead of the all important exit strategy.
First, let’s define “exit strategy”. An exit strategy is a strategic plan to help sell an investment in a company. In short, it enables one to limit their loss and make a substantial profit when they reduce or eliminate their stake in the business.
Compiling an exit strategy should not be left until you decide to sell your business. Experienced entrepreneurs plan an exit strategy before they make a single penny from their new business. Why? Because business owners that have mapped out their exit plan can then make decisions that will get them closer to that plan.
There are numerous exit strategies and they will vary depending on the type of business you are working in. An IPO is one option, where you sell part of your company in the public markets. There is also the strategic acquisition option, where another company purchases your business with cash or stock.
It also helps to look at what a potential buyer looks for in a business. Your business will be much easier to sell if it includes the following characteristics:
- Your business is profitable with no prospect of financial collapse.
- Your company has a strong brand that hasn’t been tainted.
- The future revenue of your company is safe and not in jeopardy.
- There are no skeletons in the closet that can pop out and cause unexpected problems.
Remember, to succeed in any business you absolutely must start at the end by clearly defining the desired outcome and then plan the steps needed to achieve success. The bottom line is the sooner you create an exit strategy, the more time you will have to create processes and systems that will help maximise your profits when selling your business.
Make sure you’ve considered your exit strategy as part of your business planning. BDH Leaders can advise you on the best way to structure your business.