Every entrepreneur must think about an exit strategy from the very beginning of starting the business.
You’ve heard people talk about the business plan as the roadmap for business – well, like any roadmap it is important to know when and where to exit.
Every entrepreneur is required to put in money, blood, sweat and, sometimes tears in the startup phase. Other funding such as that from friends and family, VCs, angel investors and banks will expect a return on their investment first and foremost. As the entrepreneur you must plan for how you will take back more than you put it when it is time to exit.
There are five basic exit plans to consider. Briefly they are:
(1) Bleed the Business as you Go
Pay yourself the big bucks from day one and take advantage of every perk available. Of course, you don’t want to bankrupt the company, but if you keep an eye out for a buyer you may be able to sell out for a good quick profit. Not all companies can do this.
(2) Find A Buyer – SELL
You may build a business that is perfect for the risk-averse or under capitalized entrepreneur. (S)he is happy to purchase the business now that it is established, has customers, a track record and, most importantly, income.
(3) Succession or Employee Buy-out
You may plan early for an employee to take over the business or a relative who has experience working in it. This option relieves you quickly of ownership while better ensuring that the business will continue with consistency and make required payments to you. Selling to family is usually not a lucrative option, but may have excellent tax advantages.
(4) Sell It All – Liquidate the Assets
This is the best scenario for entrepreneurs who haven’t planned for an exit or have an immediate need to get out of business. Almost everything in your business has value to someone else. Get help on evaluating your assets.
If your business is truly scalable and you have been successful in getting funding you may want to take your company to market. Going public is an exit most entrepreneurs today never consider but in the right situation it is a perfect exit plan.
Regardless of which exit you choose, think about it from the beginning because it will have, and should have, a dramatic impact on how you grow your company. Every entrepreneur has the potential for the unexpected to happen – disability and sickness; death; and almost guaranteed burn out. You can’t wait for one of these events to take place – a failure to plan is a plan to fail.
Even in the best case scenario – when you sell you will have a contract to stay with the company – one, three, five, or more years. If you wait for burn out you’ll be too spent and won’t have what it takes to make a smooth transition to the new owner.
Of course, if you become disabled or die your family may have to deal with what you weren’t willing to take on. Everyone loses – not just the entrepreneur, but the employees, the customers, the vendors, and the community as well as the entrepreneur.
Plan your exit today. It is the most important plan you’ll ever have.
By Vicki Donlan,