You are getting ready to open your dream business. You checked all the boxes. You have a business plan, financing, and a marketing plan. You think you are ready but in the rush to open the doors, you might have missed one important step. Have you thought about an exit strategy for your small business? No? That is not uncommon. Most business owners love their business, the excitement of creating something, the rush when someone buys their product, or you land a big account. Exit? Why would you even want to think about your exit strategy?
It’s simple. If you know how you want to exit it helps determine how you build, operate, and run your small business.
An Exit Strategy Provides a Long-term Vision
When you consider an exit strategy for your start-up early on it provides a long-term vision of how to develop your business. Let’s say you want to grow your business quickly so you can sell it. That path impacts how you grow your product portfolio, staffing and capital expenditures. It helps you position your business for sale because the decisions you make are seen through the lens of a potential buyer.
On the other hand, if you want to stay small and run a “lifestyle” business — basically create a job for yourself and a few others — you are more concerned about slow and steady growth. You care more about relationships and building a solid foundation for success over the years. When you make an investment, the ROI can be longer because you will still be there to reap the benefits.
If you are building a family business and want to leave it to the next generation, what you do early on has a significant impact on how you grow your operation. How many family members will be involved? When will you bring them in? What roles will they play? Those factors change how you hire and who you hire. If you are passing the business on to family members who are ready to take on the business, your exit strategy may be accelerated. If not, you may need to work longer to ensure the success of the business.
An Exit Strategy Ensures Sustainability and Reduces Risk
The failure rate of small businesses is high, which makes many large companies fearful of working with smaller entities. They are especially leery if the small business owner is “the business.” Most customers, especially large ones, want a long-term partner. They do not want a disruption in products or services. They do not want to find new sources or train new suppliers. Customers want to know you have a plan and a sound structure in place to sustain the business. When you have an exit strategy for your small business in place it shows your big business customers that you have “taken care of business.”
An exit strategy for your start-up also reduces the chance that the company will be impacted by the unexpected. For example, in the case of illness or the death of the owner, there may be an extended period of chaos. Without a plan, the business may not survive. What will happen to your family? Think about how your employees’ loss of income can send them into financial distress. How will your customers’ operations be impacted if there is a disruption in their supply chain?
The risks are great if your business is not sustainable. Yes, the exit strategy for your business may need to change over time. But you are way ahead if you have at least considered the options and are operating in alignment with your plan.
An Exit Strategy Attracts Investors
Today people of all ages are starting small businesses. Shark Tank offered a Young Entrepreneurs Special that featured kids and teenagers. It was entertaining and educational. On the opposite end of the spectrum, individuals are starting businesses at 50 and up. Some are into their 60s or even 70s when their peers are retiring. The point is, having an exit strategy can attract investors to start-up businesses no matter the age of the founder.
For younger people, investors will be excited by their energy and desire to be in it for the long haul. They may be lured in by the vision of the individual to grow or franchise the business. They may be excited by how the business appeals to a variety of generations.
Investors also invest in the dreams of older entrepreneurs. The research shows that older entrepreneurs outperform younger ones. There are many reasons including the experience they gained while working for others. I like to say I made my mistakes on someone else’s dime. So, when I started my business, I knew what not to do! Investors want to know the exit plan of older entrepreneurs to decide how it fits with their strategy and goals. Investors want to know your exit plan, are you planning to stay for five years, ten years, or more?
I have not covered the various types of exit strategies. I will write about that in a later blog. Right now, I just want you to do what most entrepreneurs fail to do — put the same importance on creating an exit strategy for your small business as you do on the more common things on your business start-up checklist.