Build Your Business With The Best Exit Strategy In Mind
An Exit Strategy is something that most business owners think they have, but haven’t thought through clearly. So what can you do to ensure yours is air tight? To make sure your Business Exit Strategy is air tight, you must work backward. Your Business Strategy, at the end of the day, relies on it and the future of your business depends on it.
So what can you do to ensure yours is air tight? To make sure your Business Exit Strategy is air tight, you must work backward.
What Is The Best Exit Strategy?
The definition of an exit strategy is the ideal way you eventually want to part ways with your company — whether you’re a part of it or not. All things eventually come to an end — whether it’s by choice or otherwise.
Before you start your company or even decide on an idea, it’s a good idea to know WHY you’re doing what you’re doing. Do you absolutely love the day to day or your industry? Are you wanting to be your own boss while becoming moderately well-off? Are you instead trying to amass a giant enterprise?
Serial entrepreneur Travis Steffen has already sold 6 companies, so his advice here on When To Sell A Company is pure gold:
So the question you have to ask yourself is…
What Is Your Ideal Exit Stategy?
Do you want to own your company forever, or sell your company to a competitor? For how much? Do you want to get cash? Equity? Stock? Do you want to keep working for your company after you sell it? For how long?
To know the types of things you need to do to get your ideal exit, you first must know what that ideal exit is and why.
As an entrepreneur, I personally never get tied to my ideas. I start companies knowing that in 2–3 years, I’ll look to sell them — often proactively. Knowing that you want to sell your company someday soon ensures you can build it with the end in mind.
Watch as top VC Jonathan Teo explains the roles of entrepreneurs and investors in successful Business Exit Strategies.
The Startup Exit Strategy
From day one, your goal should be to automate as many of your operations as possible.
First, research effective ways to operate. Then, look to create a detailed step by step system so descriptive that a brand new hire could read the manual and carry out operations perfectly. After that, look for 3rd party tools that can help you do the work for you.
The more you can automate pieces of your operation, the easier it will be for you to focus on growth — and the easier it will be to phase in a new owner should you decide to sell.
It’s also important that you ensure that your staff can think for themselves — and that they can improve their areas of expertise on their own even after a new owner takes over.
The more automation you have, and the more hands-off your company is to operate, the easier exiting your business will be because the buyer pool will be larger. Rather than just a competitor or complimentary service that will acquire you, it will expand outward to anyone who likes money.
Your Asking Price To Sell Your Company
Most businesses do not ever sell — not because they’re not sellable (every company is), but because the owner’s asking price is unrealistic. At the end of the day, your company is only worth as much as a buyer is willing to pay for it, and the more successful (and expensive) your company is, the smarter the buyer pool becomes.
Just like you’d need to justify a fundraising amount to investors, you’ll need to justify your asking price for an acquirer even more. Quite often, this will be based on a multiple of your net profit.
One thing that’s important to note is that when looking to exit your business, when you are proactively looking to be acquired, you have less leverage than you’d have if you were approached by a potential acquirer. In other words, if you’re looking to flip your company, you’re going to get a lot less than if somebody else starts a dialogue and offers to buy it from you.
The Exit Strategy Clause In Your Business Plan
If you’re creating a traditional business plan for a bank, or a slide deck for investors, they’ll also want to know what your exit strategy is.
Not only will your goal be to ensure they know their money is safe and will appreciate in value, but they’ll want to know that it’s your primary goal to generate a very large return should everything go as planned.
Give them an upside, give them a timeline for their upside, and show them how you’ll implement your plan — and you’ll be a lot better off than you otherwise would be.
Check out this Investopedia article that provides more info on the Definition of an Exit Strategy.
In summary, whether you’re starting your business from scratch, or you’re planning to exit your company as soon as possible — decide what you want, then work backward.
Originally published at www.mentormojo.com.
