When preparing your business plan it is useful to include a section that will consider your future plans and milestones and your possible exit strategy. After all in your business plan you have shown how much time, energy and money were devoted to your business so it will be only appropriate if you show you have an idea how to collect the rewards from your hard work. If your business plan is written to answer the questions of possible investors, description of your exit choices shows that you have put time and research in the future and that you have a clear idea of how the company has grown and will continue to grow. A clear exit plan also shows how investors are going to realize possible financial rewards from financing in your business. If your business plan is written to be used only internally, then a clearly outlined exit strategy could be used as a tool to help you decide on major expenditure choices and re-evaluate them according to your plans for the future.
Furthermore, if there is more than one partner in your business, a clearly outlined exit strategy can reduce the friction that inevitably comes when there are unspoken exit assumptions. It is not necessarily true that all partners will have the same vision for the company future as for some personal values and business decisions might collide.
There are a number of exit strategies but in general venture capitalist are interested just in couple of them IPO (Initial public offering) or the sale/acquisition of the company. Going public usually does not concern small businesses as your company has to be fairly large to be traded publicly. It is always nice to have created a company and/or a product so attractive that other companies will want to acquire your business. If going public or acquisition is part of your exit strategy have in mind that often those two options may force you to change the management team of your company and even you as the founder might be replaced. Consider this against the monetary rewards associated with either strategy and see how those relate to your personal foundations and expectations.
Novice entrepreneurs consider that their business will quickly allow them to pay back investors and eliminate their influence on the business. However, this is not a realistic option as it is likely that if your company has become quickly successful the investor will likely not have a good motivation to sell or will require a prohibitive amount of money in return for the shares.
Here are a few other exit strategies to be considered for small businesses owners.
Your business could be bought by individuals that are willing to pay you cash and will take all further control of your business.
Join forces with an excising company by combining resources and creating possibilities to produce for services and products that complement each other. This strategy in general will not bring you immediate cash and will limit your managing influence.
If your idea and concept could be sold to others to replicate that will serve you with both current cash and future potential for growth. This exit strategy concerns only the businesses that involve appropriate concepts and will be generating a lot of complicated legal issues in general.
Some businesses are made to stay in the family and this could be the most appropriate exit strategy for your business. Consider that by choosing to leave the business for the next generation, you as the founder might be stirring up some family friction as well the fact that there will be no cash reward for you specifically. There are some considerable tax implications to be reviewed as well.
If partners find it would be beneficial for one of them to leaves the business because of need or want, the other partner must buy out the shares that the partner has in the company. It the company was financed 50/50 by the partners, than the one partner must pay the other partner exactly half of the assets of the company unless other agreements have come about.
Many companies may decide not to exit their business. Therefore there is no exit strategy needed, yet there should still be a future plan for your business in 5, 10 or even 20 years.
Developing an Exit strategy for your business shows that you have made careful, realistic and objective consideration of your business its future and can offer a pragmatic future rewards for all investors and shareholders.