The importance of having an exit strategy

In today’s blog we will be going through and discussing the different types of exit strategies, what they mean, and how you can put them in place in the early days of creating your business. Exit strategies are an important part of anyone’s business plan and fundamental for, of course, the latter days of your business depending on the time frame you put in place for yourself to exit! Even though it may seem like such a way off, an exit strategy is crucial which is why it is so important to get it sorted as early as your business starts.

Planning is important

There are two main reasons why it is crucial to plan your exit. Number one, outside investors may want to collect their return. The investor would see no return until they cash out, or alternatively if the business is sold, then they would receive their money. It’s important to know your exit strategy as then you can be clear about the time frame of your business.

Number two, you may lose the love for the company. Entrepreneurs love to start new ideas to work on for companies and like most it can get boring once all the cogs are turning without any mishaps. This is assuming the startup takes off, but you can set your exit for four to six years. So, if it does turn into a great operating machine or doesn’t work out you can create a new start-up and use your knowledge from the first time round to help manoeuvre the early days of your new venture!

Different types of exit strategies

Now, let’s look at five different types of exit strategies and reasons for them that you can put in place within your business plan.

Merger and Acquisition

Firstly there is Merger and Acquisition (M&A). M&A means being bought out by a bigger company or merging with another company who is similar to yours. This exit strategy is seen as win-win as merging companies can allow skills to be shared and can make the company a powerhouse with all the brains coming together!

Initial Public Offering

Then there is Initial Public Offering (IPO), which used to be the preferred exit strategy for companies as it was the quickest way of cashing out. It’s said that since the year 2000 when the internet blew-up, the IPO rate has slowly declined every year until 2010, resulting in the IPO rate now at around 15%. This exit strategy isn’t highly recommended as shareholders can be very demanding and can add unwanted stress. When choosing an exit strategy you need to be sure that it will benefit you and your company and not put anyone at risk.

Private sale

Another route you could take would be to sell to an outside individual. This exit strategy is a great way to cash out, pay back your investors, take some time off, pay yourself and potentially use some of the money to create a new start-up! Of course you need to be careful with who you decide to sell to but really you just have to make sure that they have a passion for your product or service, and that they have suitable skills to bring to the business.

Make it your cash cow

If your business has a steady flow of cash and you are in a stable position within the marketplace then you can turn it into your golden-goose and hatch some eggs! You can find someone you trust and know to take over, you will be able to pay off your investors, but also utilise the incoming cash flow to start up your next big idea. You would retain the ownership but would have the time to focus efforts on other projects, which can be a good thing if you are feeling rundown after X amount of years of running the company. But of course… golden-geese need to be fed, let outside, and taken care of!

End of the road

The final strategy you could utilise would be the liquidation and closure of your business. This simply means if you have had enough of running the business and really don’t want to keep it going then you can just shut it down and liquidate everything. This exit strategy is perfect if you are stable enough and thinking about retiring, you can reap the rewards from all the hard work you have put in.

I hope this blog has been insightful and helpful. If you need advice about the best way to exit your business then you can speak with one of our experts by clicking Get help here

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