Why Every Start-Up Entrepreneur Needs an Exit Strategy
Even when you are in the initial stages of launching a start-up business, the most successful entrepreneurs are those that are already thinking about their exit strategies. You might wonder why you’d be weighing up your exit options before your business has even taken off, but by considering the end of your entrepreneurial journey, you will be able to fully harvest the wealth and passion invested into your start-up when the time is right.
However, a report by Securian Financial into entrepreneurs and their approach towards exit planning revealed that almost three-quarters (72%) of respondents had no exit strategy. The harsh reality is that it can take several years to formulate and execute a successful exit strategy, so without half an eye on the end game from day one, it makes life even harder to realize those long-term profits. Below are five clear benefits of cementing an exit strategy during the infancy of your business:
An exit strategy defines clear goals for the future
Think of your exit strategy as the blueprint for your business going forward. It is a roadmap with goals and targets to aim for in the months and years ahead. By implementing this roadmap in the early days of your business, you will be cementing your vision for your life outside of the business.
It allows you to ascertain early the kind of individual(s) or investor(s) that you’d like to pass the business onto when the time is right. It might be succession planning to pass it onto a family member. Alternatively, you may have your eye on being acquired by a larger competitor, in which case you will have immediate targets in mind to ‘wow’.
Businesses with an exit strategy are more investable
At My Management Guide we’ve discussed angel investors at great length and the benefits of getting finance at an early stage, but it’s just as important to prepare for selling up too. Investors looking for attractive opportunities will find your business more appealing if an exit strategy exists. It demonstrates to prospective investors or buyers that you are serious about setting and achieving long-term goals. It also gives prospects peace of mind that you are keen on exiting the business and moving on. Some investors can get their fingers burnt by indecisive entrepreneurs that find it difficult to let their ‘baby’ go.
Exit strategies can provide financial freedom for exiting founders
The best exit strategy for an entrepreneur is to generate sufficient financial security to give you the freedom to do whatever you want upon exit from the business. Most entrepreneurs will invest and tie up a lot of their net worth in their business, so extracting that value is vital when the time is right to sell up. You will need to know how much money you need to live the lifestyle you desire. It can help provide a target for the company’s value, giving you time to define what is required to realize that sum of money.
Too often entrepreneurs live in the present rather than the future. Savvy business owners will also invest their wealth in multiple areas, making their hard-earned money work even harder for them. Some will go down the stocks and shares route, others might invest in other start-ups or even trade forex pairs. Even if you have a sound business mind, it’s not embarrassing if you are unsure of how to utilize the Forex markets. Sites like Top Online Forex Brokers will pinpoint genuine platforms that are licensed and regulated to handle your cash for this popular form of financial investing.
You will know how to determine your company’s worth
For many entrepreneurs without an exit strategy it can be very difficult, if not impossible, to accurately calculate your business’ worth. Worse still, you will find it just as hard to ascertain whether the value is enough to safeguard your financial future when the time comes to exit.
Having an exit strategy in place early gets you in the right mindset for assessing your finances. You will be well-versed in recording and comparing annual financial records; you will be aware of intangible assets, and you will have a good idea of the value of your business in its current market. For instance, you might have data on recent sales of competitors a similar size to your business to use as a benchmark. Only by continually monitoring and assessing this plethora of factors can you truly have an idea of your business’ value to potential investors.
Your existing management team and stakeholders are treated fairly
For many entrepreneurs, it takes blood, sweat and tears to build a successful business from the ground up. Not to mention a dependable army of employees to call upon too. When an exit strategy is correctly executed, you can be confident that you are doing the right thing by your loyal employees and stakeholders.
When the time comes to sell up and move on, Navix Consultants believes exit strategies can create legacies, protecting employment for your existing workforce that have the company running through their veins. It’s a win-win situation for many investors, who know they have a readymade team to go and carry on the good work.