Thinking of an exit strategy might seem like a premature expectation of failure. After all, why would you, the new business owner, have so little faith in your company that you have a plan in place to ensure you can get out clean and without hassle?
An exit strategy is less about having faith and more about being practical. Leaving a business is, for some people, inevitable. It may happen five years down the road or 50 years.
The length of time may not matter but if you are smart, you would factor it in your business plan.
In addition, having an exit strategy would be attractive for some investors. If you, for instance, have plans to exit after a certain number of years, investors who know they can plan to sell their investments more easily would be more opened to working with you. As investors won't see the fruits of their investments for a few years, having a predetermined time and exit plan will help them make a decision regarding your business.
But planning for an exit strategy is only part of the process. You need to be aware of all possible scenarios affecting this and plan for each one accordingly.
Some of these reasons for having an exit strategy are;
1. Merger: your company merges with another. This either results in a conjoined name or your company retains its name and independence but takes on a ‘parent' company. This helps the company as its budget is increases exponentially.
2. Acquisition: you allow your company to be acquired completely. Your intellectual property, copyrights and your staff becomes the property and responsibility of the acquiring company. You may be offered a seat on the board of directors or can sell your majority shares and retire.
3. Inheritance: you intend to surrender all control of your company to your chosen heir. This is effectively you stepping down and having someone replace you. Only difference is, this would have been planned for the start with a successor in mind. This successor would have undergone training to prepare him for the eventual takeover. If your business is to be part of your legacy, keeping it in the family would be a good way to keep the wealth growing.
4. Sell to an individual: Slightly different from a merger or an acquisition since this requires you to sell to someone you know rather than an entity. It could be a relative or even a business partner; basically someone who has interests and skills in the operating of the business. You sell it to an individual, collect your money and choose what you want to do next.
5. IPO: the Initial Public Offering used to be a sure win but after the internet bubble burst in year 2000, it is not something startup companies should consider and definitely something bigger companies should approach with trepidation. Taking your company public is a huge step and it should not be considered unless you know for sure that you can succeed. One need only look at the social media companies to know that even with millions of visitors and users, going public can still hurt a lot.
6. Liquidation: sometimes the best option is to simply shut down, close your business and liquidate. It is a quick and easy way out. However, be aware that there is a chance you may receive far less money that you expect. If you need to close in a hurry though, choosing to liquidate is a good move.
To fully be prepared, do a value check on your company every few years. This will ascertain how well your company is doing in the eyes of the industry and market while allowing you to modify your exit strategy.
The best exit strategy is one which fits the mode of your business and your goals toward it. Determine what you want out of your business and prepare accordingly. Someone who chooses to establish a legacy will have a radically different strategy than someone who merely wants to make as much cash in the shortest amount of time possible.
If you plan carefully with the end in mind, you will have a clear vision of your direction and destination thus enabling you to plan and roll out your products or services in the most efficient way possible.