As part of working with business owners to help grow and sell their companies, clients often need assistance in answering an important fundamental question: "What's your Exit Strategy?" This is not a simple question, however. It depends on who is asking it. Are you being asked by friends and family, or are you asking yourself what you plan to do once you exit the business? Or are you being asked by someone else that is a key stakeholder, such as a potential investor or business partner?
There is usually a long term exit strategy (yours) and a short term exit strategy (the investor's.) The investor group you are raising capital from wants the enterprise to grow according to plan, and is often looking for great returns paid out as quickly as possible - or longer if they are more patient. Does your plan account for those two separate but important goals?
Moving beyond friends and family to raise money from professional investors requires developing a new perspective on your capital partners. Your viewpoint may differ slightly in terms of time frame, so it is important to meet and understand your audience appropriately. To successfully raise capital from investors, it is important to craft an answer that keeps them happy, yet positions and builds your business for the long term.
Exit strategy for investors
A proper exit strategy illustrates a realistic outcome for both your and your stakeholders. While your strategy may change over time, exit statements are made from the perspective of the current time, like your company's value. A qualified financial advisor can help business owners like you manage the path from this point in time to a future successful exit. To illustrate a realistic exit for investors now and to drive liquidity in the near term, there are a number of options to consider and communicate that sound reasonable. Some acceptable options investors like to see include the following: going public, merging, being acquired, and selling operations. Most exit strategies are some combination of these choices.
Selling the company's operations may include selling parts of the company while holding on to other parts: keeping certain patents, signing licensing agreements, franchising the concept, or offering consulting services until new management is in place. Investors like to explore these potential exit strategies in advance along with the likelihood of achieving their returns in a realistic time frame.
In part 2, we'll talk about good choices and making an exit statement.
Are you planning to use your business to fund your retirement? If you aren't sure, check out author Joseph M. Maas' book "Exit Insight: Getting to Sold!" for more info.