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:
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.
Copyright © 2002 Rhonda Abrams.