What is an exit strategy and how to plan for it

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Famed business writer and inspirational speaker Stephen Covey said, "Start with the end in mind.'

This is great advice because if you have no idea where you want to end up, you're not going to know how to start.

Having an exit will be very important to you and your investors. When you implement your business plan, potential investors will want to know what your long-term plans are. How your exit plan is formulated will determine how you operate and run the company.

Therefore an exit plan is really the anchor which will ground your business and keep you focused.

But how do you plan for an exit strategy when there is more than just one type? This depends on how large a business you are running; if it is a sole proprietorship or do you have partners who have invested in your start up. Did you plan for your business to be a long-term or a short-term investment?

All of these questions need to be finalised before you even get your venture off the ground.

For example, if you are in it for the long-term and are a sole proprietor, one potential strategy would be to allow your business to run itself dry. You would pay yourself bonuses and increase your salary in the years following your eventual exit while ensuring that all debts are paid off in full. When the time comes, you simply close the doors and liquidate any remaining assets.

If your business is planned short-term, two potential exits would be to go public and relinquish all ownership of your company to your buyers or be acquired by an existing company.

Other exit strategies could be that you are handing it over to a member of your family, in which case, a clear succession line must be detailed in your plan. Trainings will be required to adequately prepare your inheritor for the taking over process and beyond so make sure this is factored into your proposal.

Regardless of your choice, your business must be debt free by the time you implement your exit strategy. Your finances must be up to date and all current laws and regulations which affect your business are adhered to.

As the exit strategy will be built into your business plan it would be vital for you to consult relevant people on the implications and workability of your plan. You have to also keep track of the value of your business and how this value changes over time and what affects this change. It is imperative that you review your exit strategy regularly and make changes wherever is necessary.

For example, if you decide to make your business long-term instead of short-term, your exit strategy will need to change to reflect this.

Investors won't hold the changes against you but they will not look kindly on the entrepreneur who fails to adapt to them.

Chasing your dream to start a business and making it big is just that; a dream. It would mean nothing if your plans are not solid and you lack the means to carry it out.

However as success is in the palm of everybody's hands, the question really, is not how much you want it but are you pursuing it in the right way.

As the late Stephen Covey said, "Be sure that as you scramble up the ladder of success, it is leaning against the right building."

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