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Eye opening insights for business and beyond. 

What the exit strategy for your business?

8/17/2021

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When you start a business, it's difficult to look down the road and see where it might end up. When you're caught up in the busy day-to-day it can feel impossible to think about what it might look like to end your business. But much like retirement, spending some time thinking about the future of your business is a critical piece of the pie and it will drive your business decisions down the road. 
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What do you need to consider to decide on an exit strategy?

Most entrepreneurs we run into don't have an established, documented exit strategy. As a business owner, especially if you're paying your bills with the money you make, you are in hard hustle mode all the time. Working on your business is just another chore to add to the pile of things that you need to do. 

Your hard work has value

Amongst the hustle, you should remember that your hard work is building an asset. That asset has value. Whether you're building things, offering services, or sharing your expertise with the world, it's time to think about assigning value to what you're putting out in the world. You don't want something you've worked hard for to end up fizzling out without an end game. 

Don't just dream

The other reason that you should write down your exit strategy is so that you can actually accomplish it. Most goals are just dreams without drive unless you put the pieces in place to accomplish them. So, that's why making some decisions about what your end game looks like will help you put the pieces into place to accomplish it. 

"You are 42% more likely to achieve your goals if you write them down. Writing your goals down not only forces you to get clear on what, exactly, it is that you want to accomplish, but doing so plays a part in motivating you to complete the tasks necessary for your success."

Way You Need to Write Down Your Goals for Faster Success, Inc.com

Questions to ask yourself

Ready? Ok, let's get to it.

Here are a few questions you'll want to ask yourself: 
  • Is this what I'll do until I retire? 
  • How does this fit into my other business endeavors? 
  • What does my business partner want to do? 
  • How are my children impacted by my business now and in the future? 
  • What my spouse think about my business (this is more important in community property states)?
  • How does my business fill the gaps in the market? 
  • Do I plan to scale the business in the next 5-10 years? 

After you know the answers to these questions, you can choose an exit plan. Oh and if you haven't already, we highly recommend that you create at least a one-page business plan (here are a few samples of business plans from the Small Business Association) to document your short and long term strategy. You can add your exit plan to this document and use it as a north star when you make business decisions for the short and long term. 

5 Exit Strategies

Source: Fundera.com
  • Family Legacy
  • Become Acquired
  • Internal Buyout
  • Partner Buyout
  • Liquidate
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Summary: Keep the business in the family. Pass on to like-minded, like-skilled children or other successors. 
Plan Ahead: Choose a selection of family members that might be potential mentees to help groom them for a long term take-over. Start documenting your processes and setting up legal structures to ensure a fair transition.
Pro: 
  • Leave a legacy
  • Help provide for your family ongoing
  • Choose your successor
  • Can stay on in an advisory role
Con: 
  • Can be volatile emotionally and financially
  • May not be someone capable of taking on the role
  • External participants can disagree with successor
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Summary: Having your company purchased or merged with another company. 
Plan Ahead: Ensure that your offering is unique in the market and fills the gaps of your competitors to set yourself up long term for acquisition
Pro:
  • Opportunity to have a clean break from your business
  • You can negotiate the terms and price (in most cases)
Cons: 
  • It can be time consuming and costly. 
  • It can fall through at any point in the process
  • You no longer have control over the business
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Summary: Employees purchase the organization from you.
Plan Ahead: Build a acquisition plan that allows for a smooth and clear transfer of power. Communicate long term plan to employees to help build loyalty and ensure quality of work stays elevated. Start identifying leaders in the organization and mentoring them. 
Pro: 
  • You can hand off the business to someone who knows the inner workings well. 
  • You can still make money off of a company buyout. You can also arrange to take a % of the profit in exchange for ongoing mentorship. 
  • Your business vision has a higher probability of remaining in tact. 
Con: 
  • You may not be able to find an employee or manager who wants to buy the majority of the business from you. 
  • The transition can have an negative effect on existing clients. 
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Summary: For those businesses that aren't sole proprietor, in this scenario you would sell to your business partner.
Plan Ahead: In a perfect world, your partner agreement has a clause for how the buyout should occur, but if it doesn't it's a great time to talk about it.
Pros:
  • Your business will likely function as usual. 
  • You can exit your business fully and earn a profit on the sale of your share
  • You already know your buyer which should simplify the process.  
Cons: 
  • Your partner may not want to invest in your share. 
  • You may have to completely give up any stake in the business. 
  • There could be emotional instability between partners creating stress. 
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Summary: Close your business, and sell your assets to the highest bidder. 
Plan Ahead: If you do end up going down this road, plan to get appreciating assets and high quality equipment so they retain the most value upon liquidation. 
Pros:
  • You'll be fully disconnected from the business. 
  • It's the simplest and quickest method. 
  • You make money from the assets. 
Cons:
  • The retained knowledge doesn't translate into value.
  • You won't get the biggest return on the investment. 
  • It's final. 
  • It could result in severed relationships between various vendors and employees. 
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Want more business advice?

Maybe you're just starting up, if so, you might like our Basic Steps to Starting a Business in Bremerton (and Beyond). Curious about your office space options? Read Why are Coworking Spaces Important.

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