Most business plans focus on issues related to product development, marketing, sales, and growth. However, when forming a company, you need to develop sound business succession plans, and acquisition or exit strategies. Exit strategies are executed by investors, business owners, investors, or venture capitalists to liquidate or quit their position in a financial asset once certain criteria have been met.
Right now, you may not be thinking about selling your business or retiring or selling, but at some future date, you will need to have a viable exit strategy. An exit strategy is a plan detailing how an investor intends to get out of an existing business or investment. A business acquisition, merger, or sale could be the strategy that helps realize shareholder value. But when selling your business, you must get right. Often, without appropriate guidance, the process can be intense, complicated, and stressful.
Typically, entrepreneurs develop an exit strategy before venturing into business because the choice of exit plan has an important influence on business development options. If, for example, your plan is to get listed on a stock market through an initial public offering (IPO), your company needs to follow specific accounting regulations, and therefore, plan accordingly.
Entrepreneurs often use exit plans to sell a company they founded. An exit strategy may be implemented to close a loss-making business or non-performing investment to limit losses. Also, you may want to execute an exit strategy when a business venture or investment has achieved its profit objective. An angel investor in a startup may, for instance, may plan an exit strategy through an IPO.
Other reasons why you might opt to execute an exit strategy might include a significant market condition change due to a catastrophic event or legal reasons like estate planning, divorce, or liability lawsuits. Also, it could be for the simple reason that you want to cash out or are retiring. The exact timing and details of exiting may not always be precise but documenting an exit strategy and plan ensures a smooth transition not just for yourself but for employees and stakeholders.
An exit strategy allows you to focus on your business goals, current and future needs, and more importantly, on the available options for accomplishing your exit plan. Research by Exit Planning Institute (EPI) indicates that within one year of exiting their company, 75 percent of business owners experience regret, suggesting that they either lacked an exit strategy or the exit plan failed. EPI also indicates that 83 percent of owners fail to have a written exit strategy.
By carefully planning how and when you will exit your business or investment, you can minimize any associated consequences that you might experience upon leaving. The goal should be to prepare for the inevitable departure but on your terms and conditions. Waiting until you need an exit strategy can lead to unnecessary pressures that could negatively affect your decision-making process.
Failing to create a strategic exit plan may result in a frustrating, disorganized, and complicated exit from your business. To help you succeed, consider forming a team to help you in preparing and executing the exit plan. The team could be made up of an attorney, accountant, financial planner, business coach, and mergers and acquisitions (M&) advisor.
