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Q: How important is it to have an exit strategy and what should it include?
- William Van Pelt
New Haven, Conn.
A: As a young entrepreneur, you’re likely living in the moment and excited to get your new startup off the ground. But, it’s critical to plan for the future and have a sound exit strategy in place from the beginning.
Whether you envision a company you’ll work at until retirement, or if you hope to build the business up and sell it off for a big payout, your intentions need to be clearly laid out in your business plan.
Here are four tips for creating a sound exit strategy:
1. Plan ahead. Defining what you want in the long term will help shape your business plan. For instance, a family business that’s passed from one generation to the next will require different steps than if you’re counting on selling one day.
2. Define potential buyers. If you are planning to sell, it’s important to think about who may be interested in purchasing the value you are creating. Often, it will be a competitor or a larger company in a complimentary industry. Though, it could even be your employees.
3. Research different valuation theories. Understanding concepts like “net present value” and the “multiple of earnings” are absolutely critical for creating wealth. Do your homework. But also never forget that value is subjective so ultimately the business is worth what you sell it for.
4. Consider selling off parts of your business. Keep in mind that you can certainly sell parts of your corporate structure. You can also divide ownership into two types of shares — voting and non-voting — thereby keeping control of the major decisions.
If you don’t have an exit strategy, then you have created a strategic error by creating a job for yourself that you can’t leave. As an entrepreneur, never forget to work on the business, not in it.
What are your exit-strategy tips? Share your tips in the comments section below.
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