5 Reasons Why Entrepreneurs Need an Exit Strategy

When starting a new venture, one area you probably haven’t considered is the possibility of selling the business one day and having an exit strategy in place. Should a reason come to sell, you’ll be thankful that you had an exit strategy in place as it helps you build a business that is better to own and operate.

Regardless of whether or not you’re in a position to sell your company, there are quite a few ways an exit strategy can help you grow the business while you own it and make an easier exit if you choose to move on.

Burnout is real

Building a small business from scratch and growing it into a successful, profitable venture can be tough. It requires a huge investment of time and most entrepreneurs wear many hats and stay busy, particularly when they are starting out.

The business may be your ‘baby’ and you don’t want to delegate tasks to someone else. This means entrepreneurs are often reluctant to take time off and don’t get the opportunity to recharge their batteries. Working 24/7 will catch up with you eventually.

There may also come a point with your business where you feel it isn’t the challenge it once was. The feelings of excitement have faded, you have achieved all you can achieve and work has turned into a daily grind.

Burnout can strike at any time and for many reasons. If this happens, the last thing you want is to invest months preparing the business for sale or fielding low-ball offers as you don’t have the information to back up your asking price. When you come to sell, genuine buyers will want to see statistics, revenue history and established systems.

If you have factored this into the day to day business you will have the necessary on hand and ready to show prospective buyers. This means an easier deal, a better asking price for you and a quicker, smoother exit.

Truly understand your revenue streams

In any business it is important to fully understand your revenue streams. You need to know where you are earning money and how much effort and money is going into earning it.

Capturing accurate revenue data will inform your business decisions and allow you to make realistic projections.  It will help you successfully manage cash flow, plan for seasonal fluctuations, tailor marketing efforts and also better understand revenues you are likely to receive in the short, medium and longer term.

By giving thought to an exit strategy, it will help you decide on whether short, medium or longer term revenues are the ones you want to go after. That is where you should be focusing your efforts.

If you plan to exit next year, you might want to focus on quicker, easier wins such as recurring revenues. Common examples are monthly subscriptions that automatically renew each month, products that are on an autoship program, and membership models that are active until the customer cancels. This income happens with little effort and but keeps the money flowing in.

If you see yourself in the business for a minimum of 10 years, you may want to focus on longer term growth strategies.  Things such as cultivating life-long customer relationship, referrals, building a reliable team of staff and innovation become more important.

Document your processes

One of the biggest reasons why a global brand like McDonald’s has been so successful is because there are documented processes and systems that are congruent from store to store, no matter where in the world those stores are being built. These systems and processes ensure customers are getting the exact same experience whether they are eating at a McDonald’s in New York City, the middle of Kansas, or Tokyo.

Any task that is performed on a consistent basis can be turned into a process or a system.  All you have to do is start documenting what those tasks are, how they’re performed, and what skills are needed to perform them. By doing this you make your business more efficient and saving on time and expenses.

What does this have to do with an exit strategy though? Building systems and processes into your business means you make your business attractive to buyers in the event you want to exit. You are ensuring that the business is easy to take over with minimal interruption of revenue generation and minimal time investment by a new owner.

Measure your success

When you’re building a business with the intention of selling it one day, one of the key factors that determines your level of success will be how much the business is earning at the time you sell. Knowing how valuable your business is at any given time is the report card you’re going to follow.  It will tell you how the business is performing, and whether or not you’re getting close to the goals that you’ve set for the exit strategy.

To understand what your business is worth to an investor, you’re going to need to calculate your profits after salaries, expenses, and taxes have been paid. Investors will apply a multiple to this figure, which is determined by your business model, competition, and amount of opportunities left in the market.

Set a date and a revenue goal for when you want to make an exit from the business.  Even if you don’t actually sell, knowing how much the business is worth at any given time will help you figure out where you need to work harder.

Think and grow bigger

One unspoken benefit of having an exit strategy in place is being able to develop your mindset. Whenever you start dreaming about the day you can make your exit, you’re going to be pushed to think bigger and grow your business. Having a more profitable business not only puts more money in your pocket while you own it, but puts even more money in your pocket when you’re ready to sell. This creates an exciting environment for you to operate in and will ultimately help you build something that’s significantly greater than yourself.

Regardless which direction you decide to take with your business, either keeping it in your family for generations, or building it with the intentions of selling it one day, having an exit strategy in place as you grow has some amazing benefits that can’t be ignored.

Jock Purtle is an entrepreneur, business broker and business owner. He has learned a lot throughout his career and one key piece of advice he passes on to all his clients is the importance of having an exit strategy in place. You can find out more about Jock and his achievements at Digitalexits.com.