What Is Your Exit Strategy? Part 2

Good choices

A good option for many entrepreneurs includes exiting by being acquired by an investor, while continuing to offer help via a consulting contract. This choice may put an investor's mind at ease, as it's plausible to envision this while still being at an early stage in your company's history. The acquirer needs time to get up to speed and offer the same level of service to your existing customers while operating the company.

Some owners grow the company to a certain point within a desired sales or profitability range, and then proceed to sell operations to a logical acquirer - someone in your market space with a high level of interest. Strategic buyers like these usually offer the highest price, so it makes sense to consider staying on after the sale.

As mentioned in part 1 of this article, it may make sense to hold on to certain parts of intellectual property including patents on technology, and offer to license the technology to the acquiring company. While the finer points of this type of plan usually require negotiation, having upfront discussions with your investors regarding benefits and risks of your exit will help in raising the initial capital until stability is established.

Once you've raised capital and have consistent revenue over a period of time, then your exit plan may change as new realities emerge and the business changes. It is important to understand how these initial options will benefit the company in case you are not to remain there. Through this discussion process, you will carefully express the likelihood of potential events to investors, all while managing your existing stakeholders, and building operational efficiencies that successfully move the company out of the starting gate.

Making an exit statement

A good way to express an exit statement would be "My exit strategy is to be acquired in 3 to 5 years based on a targeted sales # of X or profitability of Y. I'd like to continue to be involved and would like to consult on the continued operations to the acquirer." This explanation offers a reasonable exit for you and for the investors at this point in time. Being able to clearly state what you and your stakeholders want in all negotiation phases is helpful to complete the transaction in a realistic amount of time that benefits all parties. Communication is essential to the process no matter what the numbers look like.

Ready to start planning your exit strategy? Contact an objective investment advisor with experience in exit planning.

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.

This article was published on 21 Jul 2014 and has been viewed 506 times
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