What is an exit strategy?

Exit strategy

When it comes to starting a new company, most entrepreneurs spend the vast majority of their time creating a business plan and putting together all of the different parts needed in order to get their company off the ground, get it running smoothly and, of course, make sure that it becomes profitable as quickly as possible.

If you ask most entrepreneurs what their exit strategy happens to be, the majority of them will answer with a blank stare or, in some instances, a mumbled “I really hadn’t thought of that just yet” for an answer.

The fact is however that a well-crafted exit strategy is not only necessary but also will significantly improve the probability that your new company will be successful.

It’s just another business process

But what exactly is an exit strategy? At its most basic, it’s simply another business process that, like product development, marketing or securing financing, needs to be put on your new business’s “to do” list.

There is one major difference however and it’s this; your exit strategy, and the exit process that you use, is often the most profitable part of your company’s lifecycle and, in many cases, monetises all of the hard work, effort and investments that went into forming the company in the first place.

Indeed, many experts believe that a properly executed exit strategy can increase the value of the business by 50% or more, literally doubling the money that your company makes for all of the hard work that you’ve put into it, and all of the activity that your business has done during your companies lifespan.

When should an exit strategy be created?

If you’re going into business with several partners, an exit strategy should be designed and then signed off by all the partners well before any external investments are procured. A well-designed exit strategy will;

  • Greatly improve the probability of the success of your company
  • Shorten the time between the foundation of your company and your exit
  • Significantly increase the exit valuation of your company

The fact is, an exit strategy should actually be prepared even before the financing strategy. The reason is that, when an exit strategy isn’t created correctly, or at all, it can create a misalignment between the company and the types of investors that invest in it, something that oftentimes results in a failure of the company itself.

Even worse is that, many times, a company with a poor or non-existent exit strategy will already be successful, causing quite a bit of shock and dismay when things fall apart at the end.

It’s not complicated

Luckily, developing an effective exit strategy isn’t nearly as complicated as it sounds. All you really need is a target date for your exit and a price that you’d like to get for the company. That’s it.

You can include things like income statements, target customers, sales tactics and maximising your strategic value but, when it comes right down to it, having a target date and the price of the two essential elements you need, and not much more.

So by all means make sure that you do your due diligence when preparing to launch your company, including market research, financing and so forth. But don’t forget one of the most important, it’s not the most important tasks that you need to accomplish, and create your exit strategy. When it comes time to sell your business, we guarantee you’ll be glad you did.

Hopefully you now realise how important an exit strategy is for running your business. If you have any questions about exit strategies, or need help creating a one for your business, please get in touch and we’ll be sure to get back to you with advice and information.