Do You Have a Business Exit Strategy? | Hands up if you have a business exit strategy. Your hand is probably down, and you’re not alone. A vast majority of small business owners don’t have any exit plan in place, and it’s easy to see why. When you start a business, your dream is to grow it into a large corporation. Unless it fails, you have no plan to leave in the near future.
That’s understandable, but having a business exit strategy is key to the success of any entrepreneur. Knowing when to leave, and planning for that moment, can make a big difference.
Continue reading to learn why business exit planning is important, and how you should go about it.
Why You Should Have a Business Exit Strategy
You might not think about exiting your business right now, but there are reasons why you should start thinking about it.
Losses and Potential Failure
When you start a business, success isn’t guaranteed. In fact, failure is the more likely outcome, especially when you consider the fact that about 50 percent of small businesses don’t live past a decade.
Yet, you have made a big financial investment in starting the business. If it fails, there’s a chance you’ll incur big losses. Business exit planning enables you to avoid such losses in the event that your business fails.
This plan gives you options on what to do in such an instance. Company liquidation is one such option. You can sell the business at the first or second sign of probable failure.
Cashing in Big-Time
As your business grows, so does its market capitalization.
What would you do if you learned that your startup has a $1 billion dollar valuation in the private market?
Of course, you could hold on to the business and keep growing it. You can also sell it and cash in on the valuation. If you’re for the latter, you’ll be in a better position to make that decision if you have an exit plan. You won’t have any trouble selling the business and cashing in.
How to Choose a Business Exit Strategy
There are different types of business exit plans. They include:
- Initial public offering
- Management buyout
- Strategic acquisition
The type of business exit strategy you choose largely depends on your personal preferences and the nature of the business.
For instance, if your plan is to retire and enjoy life away from business, you might want to sell the business through an acquisition. This means another person takes over 100 percent of the business and you go home with a nice, fat check.
If you want to make a partial exit (meaning you’ll retain some ownership portion), an IPO might be your best strategy. You get to cash in at the expense of your ownership stake. You could sell so much that you become a minority shareholder, at which point you’ll no longer have any management interest in the business.
Smart Entrepreneurs Have a Business Exit Strategy
You’re a smart entrepreneur. Don’t let the lack of a business exit strategy be your undoing. With this guide, you now have a better understanding of why you need an exit plan, and the various exit plans to choose from.
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