When an entrepreneur is working hard to turn his idea into a successful business, the last thing he wants to think about is the day he'll leave the company. But an exit strategy is a plan for your own growth as a professional, since you're planning for the day you'll move on to new ventures.
By crafting a comprehensive exit strategy on the front end, you'll position your business to succeed as a standalone entity. Whether you intend to pass your business on to family members or employees or your goal is a buyout, having an exit strategy in place can give your company an edge over the competition in winning investment dollars. Here are a few things you should do to ensure your exit strategy is a winner.
Finish Before You Start
While it may seem like an exit strategy should be created as the end approaches, businesses should actually have an exit strategy in place before you make your first sale. If you're still trying to round up investment dollars, the strategy should be part of the business plan you present to win them over. If you're already up and running, you should start now, even if you can't imagine a day when you won't be at the helm.
As you begin to think about a day when you might sell or delegate control of your business, you'll likely start projecting months, years, and even decades into the future. "I've always found that when you do this you'll consider trends in your business that could impact your success," says Margarita Hakobyan, CEO of MoversCorp. "Then you begin to put plans in place to attack all the challenges you'll face. It just makes you more ready for what's coming."
Prepare Your Replacements
If your exit strategy involves simply allowing the business to continue after your retirement, you'll want to begin to plan for the takeover early. Your intended replacement may be your elementary school age child, but it's still important to put a plan in place. Will your child take over the practice after high school graduation or is college a priority? At what point will training begin.
If an IPO or buyout is your preferred mode of exit, what will your role be? If you'd still like a say in the future direction of the business you worked so hard to build, you should include this in the strategy, as well.
As you seek investments, an exit strategy has another value to investors. When a business has a clearly-defined end plan, investors can gauge how quickly they'll be able to earn a return on that money. If you show that your plan is to earn your money and get out, your investors will see that for its earnings potential and feel more encouraged to move forward.
Even if you don't already have an end in sight, detailing what will happen in the event of an ending will benefit both your business and investors. If your plans are to liquidate assets and sell the company, investors will be relieved to see they'll be paid following that event.
As the U.S. Small Business Administration points out, you should also prepare financially for your exit. If you plan to retire, set money aside for your own future. If you'd like to make sure your employees have a cushion, as well, there are small business retirement plans that will allow you to provide your team with a savings plan without breaking the bank. You'll also get a tax deduction for setting this up, giving you yet another benefit.
The SBA also recommends investing in life and disability insurance for yourself as a small business owner. You'll ensure your family members are protected financially in the event of your death, injury, or illness. You should also consider offering the same options to your team by bringing in a specialist to discuss options.
While it may seem negative to dwell on the day when you will no longer be at the helm of your business, it's actually a positive. Whether you're planning for your eventual retirement or foreseeing a day when your company is so successful, you'll be part of a merger or acquisition, this planning is essential to success. This long-term forecasting will force you to imagine the many challenges your business will face along the way and devise ways to address them.