It's never too early to create an exit strategy. It will help shape decisions you make now and give you a clearer direction of how to grow your company.
If you're busy starting a business, you don't have a lot of time to worry about how you're eventually going to end it. Oh, maybe you think one day you're going to retire, but while you can envision yourself golfing or gardening, what's happened to your company? You need an "exit plan."
An exit plan is a long-term strategy for transferring ownership of your company to others. "Whoa, Rhonda," I imagine you saying. "I hardly know what I'm going to be doing next month, why should I figure out what I'm going to do with my company 10 or 20 years from now?"
First of all, your exit might not be so far away. It used to be when someone started a business, their intent was to build a company, make money and perhaps leave it to their children. Today, many entrepreneurs hope to start a business, grow it, and then have it acquired by a larger company.
Even if you hope to run your company for 20 years, it's important to consider what you'd eventually like to do with it. Your thoughts about an exit help shape decisions you make now and give you a clearer direction on how to grow your company.
If, for instance, you want to build a big company that could be acquired by a larger company, you may decide to target a different kind of customer, perhaps sacrificing income now to enable you to grow bigger. An exit plan may even help you choose the name of your company: "Rhonda, Inc." is more difficult to sell than "Small Business Advice, Inc."
If there is more than one partner in the business, it's imperative you all discuss your eventual exit. This doesn't mean you can't change strategy over time, but unspoken exit assumptions can cause a great deal of friction. I've seen a business where one founder dreamed of building a company worth millions to be sold in a few years, while the other hoped to build a modest business she could run for the rest of her life. They never aired these different exit goals, and it's not surprising they quickly clashed over every business decision.
If you're looking for an investor in your company, you'll have to spell out an exit. After all, they want to know how they're going to get their money back. For most investors, it's not enough to get a share of profits, they eventually want their investment turned to cash -- to be "liquid."
Some of the most common exit strategies are:
Sell. All types of companies can be sold, not just retail or manufacturing enterprises. Typically, professional businesses, such as doctors' and dentists' practices, are "bought into" by new partners. Even a one-person consulting business may be able to be sold if you find someone who wants a built-in customer base.
Be acquired. Your company may be a good fit for a larger company. Perhaps they want a product you've developed, your customer base, or your visibility and connection in the part of the market you serve.
Merge. This is similar to being acquired but the assets of the two merging companies form a new entity, and it's usually with a similar-sized company. You may or may not leave the merged company.
"Go public." When you first issue shares in your company traded on a public stock market, it's called "going public" or issuing an IPO -- initial public offering. This gives you and your investors a way to get some of your money out.
Have family members take over. Many people dream of leaving their business to their children. But you still need a plan. After all, your family members might not want to or be capable of running the company.
Employee buy-out. An excellent way to keep your company together and to retain the jobs you've created is to structure a way for management or employees to buy the company.
Close, retire, go fishing. This is the simplest way to end a business, but you also get the least financial reward. But sometimes, you just want to get on with the rest of your life.
Rhonda Abrams writes the nation's most widely-read small business column and is the author of The Successful Business Organizer, Wear Clean Underwear, and The Successful Business Plan: Secrets & Strategies. To receive Rhonda's free business tips newsletter, register at www.RhondaOnline.com.