Having the entrepreneurial fortitude to start a company is only part of the business equation, so it’s always wise to keep closing day in mind even when you’re opening your doors for the first time. Although an exit strategy might seem like planning for failure, any successful business owner will tell you it’s actually a way of planning for the future. Here are just a few reasons why having an exit strategy is a savvy way to go about your business.
Anything Could Happen
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There are any number of events that could happen during the ownership of your business. Some of these events are already in the cards from day one, whether it’s an upcoming retirement or you’re ready to move on to new frontiers. Whatever the case may be, having an exit strategy allows you to walk away on your terms with little to no financial loss.
Likewise, whether the economy takes a turn for the worse, an outside party comes to the table wanting to negotiate a buyout, or an unforeseen event happens like a decline in your health or the health of a loved one, an exit strategy prepares you for whatever the future may hold, planned or not.
Planning for an Exit is Easy
Coming up with a graceful departure from your business is as easy as setting a financial goal and following that goal through. In terms of financial strategizing, if your goal is to get out by a certain date, then run the numbers, see how it relates to your allotted exit schedule, and work steady toward your goal.
For example, if you want to reach a net cash flow of $200,000 by year 3 of your business, at which point you’ll exit, then set the date and the price and don’t settle for anything less. With that said, if selling your business in a few years is part of the plan from day one, then you should be as realistic as possible with your financial goal. In other words, don’t plan on a lucrative third year exit if your second year cash flow is lower than expected.
It’s All Part of Business Planning
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Having an exit strategy in place is no guarantee that you’ll get back everything you put into your business, but it does look much more attractive in the eyes of potential investors. Just like evaluating market trends and investment planning are all part of a business’s financial checklist, so is an exit strategy and the built-in benefits that go along with it. With a well-educated exit strategy, investors will immediately recognize the value in your business, not just the purchase and running costs.
You Determine Your Business’s Value
In terms of self-assessing, planning an exit strategy gives you the opportunity to really put onto paper how much your business is worth. This, of course, directly involves figuring out your net cash flow and then estimating your potential cash flow. This step alone may result in you either staying with your business a little while longer or exiting earlier than expected.
There are other factors to consider when determining your business’s value. These include figuring out your assets, like your business’s customer base, potential revenue, the infrastructure that makes up your business, and any products or inventory on hand. All of these things add to your business’s value and make your exit strategy more financially appealing.
An Exit Strategy Gives You Options
A well-formulated exit strategy gives you options in the form of IPO, outright acquisitions, or a possible buyout through current management. An initial public offering means you’ll stay in a management position for a period of time, which is an effective approach in terms of transitioning your business for public ownership.
If you’re looking for a fast approach to exiting, then an outright acquisition or management buyout is probably the way to go. An acquisition usually involves another company buying out your business in order to absorb your brand or corner the market. On the other hand, if you’d like to see your business prosper after you exit, then a management buyout gives your business the potential to grow with its current management team in place.
When it comes time say goodbye to your business, keep in mind the exit strategy pointers above, and you’ll have a worry-free departure.