Should You Plan an Exit Strategy?

Should You Plan an Exit Strategy?

As An Entrepreneur You May Need A Business Exit Strategy

When you start running a business, you probably don’t think about stopping. You think about growing, profiting, and building a brand.

But almost every entrepreneur – regardless of how long they’ve been in business – is wise to think about an exit strategy. An exit strategy isn’t exactly what it sounds like. It doesn’t mean you’ve figured out how to fold the company, or jump ship when things go south. Rather, you can think of you exit as the time at which either 1) your goals as CEO have been achieved or 2) the business has evolved to the point that your role should change. An exit strategy might mean you leave the business, or it might mean that your role within the business takes on a different dimension. But it doesn’t mean that you or your business isn’t successful.

By creating an exit strategy, you’re essentially planning what the business will look like when you no longer have to be at the helm of the ship. It’s very much a positive exercise in goal setting. It’s defining a point of change, and it’s important because if you don’t define that point of change for yourself, it might be defined for you.

An exit strategy is also good to have when you’re facing burnout. It goes without saying that running a company takes incredible time, energy and effort. That wears on a person and can impact your performance and level of commitment to the company.

Start by outlining your goals for the company at a potential point of exit. This can be a combination of personal goals, business revenue streams, customer base, eligibility for public offering, and more. Think deeply about how you see your company evolving and what level of your involvement makes the most sense for the health of the company.

If you’re fearful of giving up control – whether in the short-term or long-term, don’t be. According to researcher Noam Wasserman, startups with a founder that’s still CEO or in control of the board of directors are 22% less valuable than those with founders that gave up control.

Once you’ve identified your point of exit goal, you can begin to work backwards and determine how you’ll get the company to that point of change. Maybe it’s a revenue target, merger with another company, or level YoY growth.  The most common types of exits involve selling: assets of the business, the business itself and shares of the business.

Whatever your exit goal might be, you’ll likely need to determine how much money the business needs to earn, and at what pace. Giving thought to your different types of revenue streams is a good place to start. If you’re looking at staying with your business for another 15 years, you’ll want to focus on longer revenue streams and investments in people, customer relationships, and assets. If you’re looking at a shorter time frame, increasing monthly recurring revenue is likely where you need the business to focus its efforts.

But it’s not just revenue. If you’re considering an IPO or acquisition, you’ll need to know how much your business is truly worth. This involves calculating profits after all your expenses, and then considering your business model, competitors and opportunities in the market. You may need to partner with an outside firm to properly conduct a business valuation.

Additionally, creating a board of directors can be useful as you get closer to your point of exit (or earlier, if you’re ready for outside involvement and a reporting structure). It helps hold yourself accountable to your business strategy, gives you others to confront challenges with, and offers a sounding board of professionals that are dedicated to the success of your company. Note that while every board is set up differently, those who sit on a board of directors usually get paid a retainer fee.

Ensure the success of your entrepreneurial exit strategy by working with financial professionals who can offer guidance and planning. The trusted professionals at Tobin & Collins have years of experience working with entrepreneurs on all matters of business. To get the conversation started, reach out to us online or at 201-487-7744!