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"The Importance of Business Exit Strategy"

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What is your dream when you first started a business? Or if you are still looking to start one, what is your main goal? For most, it's to have a sustainable business to feed yourself and your family while creating an impact to your customers.

In the business world, the final goal of your business is called the exit strategy, or also sometimes called the succession plan. There are basically three common exit strategies available:

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1. Initial Public Offering (IPO)
2. Acquisition/selling your business
3. Succession by an heir (your child or family member)

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There is a fourth option, which is to close shop. But of course, none of us will start a business with a plan to close it down since the very beginning.

Different industries are better with one exit strategy over the others. For example, we saw a lot of tech startups purchased by bigger players in the tech industry. Businesses selling commodities such as mining or large scale farming are better off with an aim for IPO. Small businesses tend to be built with a plan for succession, and being flexible with other options as the business grows.

It's best to plan your exit strategy as early as possible, as a different strategy will require different approaches and milestones.

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Here are some of the notable reasons why planning your exit strategy is important:

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1. It minimizes your exposure to risks

Selling your business to a third party, for example, will recharge the most needed cash for your business, and minimize the risks involved in the business.

Proper planning of exit strategy can also dictate a proper plan for your capital gains.

2. Exit Strategy Give a Clearer Picture for The Financing Strategy

Why? Because different types of investors are only suitable with certain exit strategies. If your investors desire a fast acquisition to regain cash, while you are aiming for an IPO, or planning to sustain the business for a succession plan later, it can lead to a complete failure of the business.

3. Finding Buyers can be Very Hard

You can't start the business with a 'build it and they will come' mentality. If you are looking for an acquisition, you must plan your other strategies accordingly to attract buyers as fast as possible.

Articulate the desired end outcome of the business as clear as possible, and plan the necessary steps to the end goal.

Bottom Line: Keeping it Clear and Simple

An exit strategy shouldn't be complicated, and best left simple and clear. For example, if you're planning to sell the company, put the exact target date and desired price as the company's core mission, such as: 'sell the company for $1 million in Q2 2018.'

If you are planning for a succession, set the desired size of the business and when the succession will happen. Focus on this.