Planning for the End: Why You Need an Exit Strategy

One part of a business plan that entrepreneurs often overlook is their exit strategy – that is, the founder’s plan for when and how he or she will leave the business. Many entrepreneurs believe they’ll never want to exit their businesses. If that’s you, there are several reasons why you must consider life after business, even if your entrepreneurial journey is just beginning.

1. Your Family Needs to Know

If you’re planning to keep your business in the family, you will be shifting a lot of responsibility to your loved ones after you retire. Make sure they understand that one day, you’ll expect them to continue your legacy. If they’re not on board when the time comes, you may have to consider selling the business or shutting it down entirely. Family succession planning is not a simple task, so working with your family early on in your business can save a lot of conflict later.

2. Your Business May Be Worth Less than You Think

Just because a business earns strong revenue, doesn’t mean it has any value to a potential buyer. When you’re starting out, your business will likely have few tangible or intangible assets. Any equipment you buy will have some depreciable value, but your brand and human capital assets take time to build. So if you want to sell your business in the future you need to look at more than revenue, and create a plan to start building value now so you have something to sell later.

3. Your Exit Strategy Can Dictate Operations

If you’re starting a business with the intention of being acquired, you’re going to have very different operations than if your plan is to work in the business forever. Positioning a business to be sold usually requires a really aggressive growth plan that will probably need a lot of resources. On the other hand, lifestyle businesses that are meant to stay in the family can grow slowly and on smaller budgets.

It’s Okay to Change Your Plan

No matter how much you plan, your business won’t develop exactly the way you imagine. That means your exit strategy can be flexible. Today you might imagine your business being sold to a larger firm, but in a few years a management buyout might make more sense. You’re allowed to change your mind. What’s important when you’re launching your new business is that you’re thinking about your options, and planning your operations to make at least one of those options viable.

Writing an exit strategy might be compared to writing a will; you know you should do it, but you don’t really want to think about it. However, it can actually be quite exciting to begin a business with the end in mind; it gives you a clear objective to guide your company’s growth, and it can give your business stronger meaning and purpose.

Have you thought about what will happen to your business in the future?