What Is Your Business Plan Exit Strategy – Do You Have One?
Have you heard the term – business plan exit strategy? In the investing world, commentators regularly talk about the importance of having an “exit strategy.” In this context, they’re merely referring to the point at which you’ll sell.
Exit strategies make a lot of sense because they help you maximize your gains and minimize your losses. Stocks and shares don’t remain great value forever. Eventually, they rise above fair value (whatever you consider that to be) and it no longer makes sense to hold them. Any future gains, according to your model, represent an excessive risk.
Entrepreneurs should have an exit strategy in the business world too. Just because you’re risking your capital on a personal endeavor doesn’t change the underlying economics. You still want to protect your wealth as much as possible. After all, you’re investing in it because you want to make substantial returns.
A lot of entrepreneurs, however, build their companies without a viable business plan exit strategy, and that’s when trouble can start.
Exit strategies aren’t admissions of failure. Instead, they’re a form of insurance. You specify in advance the point at which running your business is no longer worth it, and then commit to ending it, should you reach that point. Not all companies are destined for success.
Hopefully, you’ll never have to use your exit strategy or file for business bankruptcy, but you might. Around four out of five companies fail in the first five years, and the vast majority collapse in the long-term, even after experiencing substantial success. Exit strategies are vital for getting out of a capital-consuming enterprise, and into one that creates it.
So how can you build a robust exit strategy for your business? Take a look at the following ideas:
Plan For Potential Failure From The Outset
Ideally, you never want to get to the position where your company goes into receivership. If possible, you want to define the terms of your exit from an industry, not somebody else. Leaving your company should be voluntary, not something forced upon you by circumstances.
Exit strategies should, ideally, be a part of your original business plan. You need to make clear when you leave your company in quantifiable terms. Thus, you might decide to abandon your ideas if you lose more than $50,000 in the first two years, or if you’re not profitable before year four.
Think About Who Might Buy Your Business
Even failing companies are still valuable. There may, therefore, be investors willing to take yours on for a bargain price, providing you with a bit of cash, and allowing you to get out without being forced into liquidation.
Before you even start trading, think carefully about who might want to buy your company. Create a list of people you could approach if one day you find your cash flow in crisis and lines of credit dried up.
Sell To People Who Will Take Your Business In The Right Direction
Finally, when selling, think carefully about who you want to pass your business onto. Some owners will continue to work hard towards your original mission. Others won’t. And remember, it isn’t always a ‘one size fits all’ when it comes to business and any business plan exit strategy.
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