Why does every business need an Exit Strategy from the start?

Picture yourself in a room, building, or house, having multiple available exits is more than a matter of convenience, it is a matter of safety and common sense, too.

The same principle applies to owning and running a business: establishing an exit strategy – a plan for eventually leaving or selling the business – is a common-sense part of smart entrepreneurship, and it lends a sense of safety and peace of mind to what is inherently a risky proposition.

An exit strategy for your business is a plan a founder or owner of a business makes to sell their company, or share in a company, to other investors or other firms. If the business is making money, an exit strategy allows the owner of the business cut their stake or completely get out of the business while making a profit.

An exit strategy helps define success and provides a timetable for charting your progress. Informs strategic decision-making – With no planned end game, it’s easy for business owners to get caught up more in the “job” they’ve given themselves rather than the long-term strategy behind running the business itself. ( this is why you need a business plan to understand the separation of you as a business owner and the business as another entity)

Planning an exit strategy is the most commonly overlooked consideration of a business strategy, yet the exit strategy plays a key role in determining the strategic direction of your company. By not proactively planning an exit strategy, business owners, their heirs or their successors may find future options are limited.

Some entrepreneurs think of their exit strategy as the means by which the business transitions to the next major stage. From this perspective, entrepreneurs don’t necessarily leave the business, yet their role changes significantly. This is why it’s important for you to carefully evaluate your business plan, strategy, and vision and determine what a favorable exit strategy looks like for you and your business.

Besides having peace of mind you can exit the business profitably, other benefits of having an exit strategy in place includes:

1) Protecting the value of the business you’ve built

2) Creating a smooth transition for your management team and other stakeholders

3) Generating a potential income for retirement or disability

4) Enhancing the future worth of your business

5) Reducing or deferring the potential tax impact on your estate, spouse, or family

6) Creating a strategic direction for your business’s growth

When Kraft was negotiating to sell Celestial Seasonings to Lipton in 1988, Siegel decided to buy it back from the corporate giant. And in 2000, Siegel merged Celestial Seasonings with Hain Pure Foods to form The Hain Celestial Group.

He had found a company that shared Celestial Seasonings’ vision, not only for the business but for its people, and knew he could finally retire to pursue another personal dream — hiking the last set of 14,000-foot Colorado mountains he had yet to climb.

To ensure he had made the right decision for his company and staff, he stayed on for two years to oversee the transition between the companies.

Here is some food for thought:

As the owner of your business, what do you want and need to get out of the business when you leave? Is it primarily a matter of profit, or are you eager to leave a mark/legacy?

  • Do you expect to see the business continue indefinitely after you leave, or are you comfortable with seeing it dissolve? Do you want to take proceeds from a sale of the business to fund another venture or retirement? Or are you simply interested in breaking even and getting out?
  • A well thought-out exit plan must address all these elements as specifically and concretely as possible. Otherwise, it becomes nothing more than a vague wish list rather than a vital part of the business plan.

Even if you have started a business, however, missed the crucial step of implementing an exit strategy in your business plan, take a step back. Better late, than never.

For further questions on implementing an exit strategy for your business, please contact us.

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