5 Reasons to Have an Exit Strategy
Exit planning is something that so many business owners put off as their focus has been firmly on the present – making decisions regarding marketing, human resources, inventory, cash flow and growth. Especially when a business is still new, it may not feel like now is a good time to create an exit strategy.
This perspective, however, is flawed.
Even if you are making a healthy profit, having an exit strategy is critical for you as a business owner. No one can predict the future, and there are a variety of reasons why business owners sell their businesses before they expected to.
The reasons vary, from a standard divestiture after years of successful business operation to a change in personal circumstances such as a divorce or desire to relocate overseas.
1. Major Life Events
Life has many different factors that may affect your capacity to own and operate your business. Getting married or having children are some good circumstances that may occur in your life. A divorce or a disagreement with a family member, particularly one who is also involved in the business, could be considered negative.
Individual owner-operators do not have partners who could shoulder some of the load. Even those who do may feel guilty about having their partners fully involved as they take a step back to focus on their personal circumstances. As a result, owner-operators experiencing major life events may eventually decide to sell their businesses.
2. Limit on Expertise
Businesses are alive, dynamic and constantly evolving. It is only natural for an owner not to have all the prerequisite skills to grow and operate a business throughout all its different aspects. One example of this is an aging owner-operator who is confronted with technological advancements in marketing and advertising.
An older owner-operator may have difficulty grasping the concepts of marketing through SEO and advertising on social media platforms such as Facebook and Instagram. Those in the food and beverage industry may also not have the aptitude to work with third-party delivery providers like DoorDash and UberEATS. While working with third-party marketing providers or hiring advertising staff to manage this aspect of operations is possible, doing so may increase overhead costs and lower healthy margins that were already set.
3. Pursuit of Something New
As a business owner, there could be a time wherein you would be interested in pursuing a different project. While some owners already have a running list of projects they would like to start, others have already honed a very sharp business acumen that enables them to swiftly identify opportunities and create plans of action, even while managing multiple ongoing projects.
While operating more than one business is certainly possible, interests eventually shift from one project to another. Because of your increased enthusiasm for your new endeavour, you will most likely devote more time and effort to it. This is something that you should not feel guilty about; rather, see it as an opportunity to express your entrepreneurial spirit. Notwithstanding this, you need to be realistic and admit that you might have to exit your more thriving older project in favour of your cultivating the potential of the newer one.
4. Understand Your Business’s Value
Often, you would not know your business’s real value if you had not yet conducted a valuation. You may have a perceived value of your business, but this is not as professionally prepared by business brokers and skilled valuation specialists who can back it up with financial data.
A thorough valuation of your business will inform you of its value and help you understand at which stage of its growth cycle it currently is. By using your business’s valuation and creating milestones for you to achieve as its owner, you can lay out your ambitions and identify the perfect time to sell.
5. Make Your Business Appealing to Purchasers
Having an exit strategy helps others understand that you have a clear vision for your business. It demonstrates that you have planned for your business's growth in advance and have definitive KPIs that have already been reached, with more to come.
Purchasers find growing businesses with well-laid-out growth plans highly attractive. It gives them the impression that the business you have grown could provide them with solid returns if kept in its current state. It also suggests that the business could further grow if they could create plans of their own by harnessing the strengths and opportunities presented to them.
About the author
Farzin is a passionate and continually evolving person; he specialises in high-end commercial properties and businesses. Focused on boutique hotels ...