What is an exit strategy?
An exit strategy is a pre-planned way for someone to remove themselves from a situation. In terms of business, an exit strategy refers to how you get back the money you have put into the business, rather than how you yourself will leave the business.
Who needs an exit strategy?
Anyone who has put money into a business can have an exit strategy. This might be you as the owner, but it could also be your investors. People who have invested in your business need to know how they are going to get their money back – not to mention a return on their investment. That’s why if you intend to present your business plan to investors, it’s important to include some exit strategy options.
What kind of exit strategy is right for you?
You need to use the right exit strategy for your business to make sure you are not harming it. For example, if your business needs investment in order to grow, taking too much money out could leave you with problems in the future. There are a few ways in which you and your investors can get your money back out of the business. Here are some examples:
1.Taking a salary
One way for you to get your money back as an owner is to pay yourself a salary from your profits. However, you need to make sure you aren’t taking too much money from the business on a regular basis. if you don’t plan carefully, you may find that the business needs more money but you have already taken it out.
It’s also important to consider what strategy and amount is fair for everyone involved. Taking a large amount of money for yourself while investors are paid back at as low a rate and over as long a period of time as possible can upset investors, so everyone should have a fair exit strategy.
2.Liquidation
Of course, if you’re just starting your business you don’t want to think about closing it down, but planning ahead is important if you want to secure investors. Liquidation usually occurs when a company is insolvent. The business stops trading and its assets are divided among its creditors and shareholders. However, the company doesn’t need to be bankrupt in order to liquidate its stock –selling off your inventory is another example of an exit strategy.
3.Selling the business to a friend
If you end up selling your business, you’ll want it to go to a good home. One option is to sell it to a friend or a family member who you think will look after it. Close friends who have supported you from the beginning may be a good option if they already know the ins and outs of the business and have an interest in it. However, this decision shouldn’t be driven too much by personal feelings. While it’s great to be able to keep a business in the family, you’ll need to know that the person you sell it to is not only close to you but close to the business and both passionate and capable of running it effectively.
4.Merger and Acquisition
If you want to hand your business over to someone else, you could consider either merging with a similar company or being bought by a larger one. This can be a win-win, as merging companies can combine their skills and resources, and bigger companies may see it as a quick way to increase their revenue. Meanwhile, you and your investors can get a return on your investment and move on to your next exciting project.
If you need a little help with writing your business plan, including your exit strategy, cbm can help. Call our team of experts on 01604 420 420 or contact us using the form on the right.