Should Entrepreneurs Create Exit Plans?

Posted on 29th March 2023

Starting a business requires plenty of thought, planning, and of course, money – without thinking of the bigger picture, you’re likely to run into problems that will limit your potential.

But when you consider the future of your venture, are you considering an exit plan?

It may not cross your mind, particularly if you’re a small business, and you may wonder whether you need one at all.

Here, we explore the exit plan and whether it’s right for your entrepreneur adventure.

What exactly is an exit plan?

An exit plan is a preparation plan for when you leave your business. Perhaps you’re selling it to an alternative company or leaving it in the hands of a relative. It’s sensible to have one in place, as any financial loss is limited, and you could even be making money.

Any business can benefit from an exit plan. There are many different routes to go down when leaving your business, whether you anticipate more success or decide to retire. There are several exit plans that you can choose from, including:

Merger and acquisitions refer to when a business is acquired by another company, or they choose to merge together.
Selling your control involves selling the stake of the business to a partner.
Initial public offering is when a private business opens up to the public, allowing people to buy shares.
Acquihire is when a business is bought based on the talent of the employees.
Management buyout consists of employees within management buying the business from the owner.
Family succession occurs when you pass down the business to a relative to keep it in the family.
Liquidation is the route when a business can no longer make a profit and assets are sold to pay debts.
Bankruptcy is used typically when no other plan is an option and assets are taken away to compensate for debt.

How can I prepare for an exit plan?

It’s important to know what your business is worth before you decide to call it quits. To prepare for your exit, get an up-to-date business valuation to ensure accuracy. This is particularly important if you’re selling your company to someone else, as you want to be sure that you receive every penny it’s worth, and it can also assist the buyer with any plans once they take over.

Think of your ideal outcome after leaving the business. This can ultimately help you to determine which plan is right for you, but if you have already decided, it can help you begin your next venture. If your company isn’t succeeding as well as you’d have hoped, is there a different route that you could take to showcase your expertise? Alternatively, your business might be making more profit than expected, and this could be used as an investment opportunity.

What are the benefits of an exit plan?

There are many benefits of an exit plan, as you can never be too prepared. It’s better to be ahead of the game than behind it, and an exit plan is a perfect example of this. It allows you to set goals for the company and the employees in a timely fashion so that you can assess anything hindering your success.

There are many entrepreneurs across the globe that sell businesses to other companies, but an exit plan is a strategy that will be attractive to buyers. Not only does it reflect that you have aspirations in place for the business, but it showcases your commitment, which is an appealing factor to buyers.

You can have peace of mind knowing there’s a smooth ownership transition with an exit plan, regardless of who is taking over the business. Employees, buyers, and even stakeholders can prepare for the transition knowing what’s to come, and you can implement any necessary arrangements, such as training.

With an exit strategy, you’ve got much more control over your business. While this is an advantage for all business leaders, it’s especially beneficial for small business owners. If the business is unexpectedly taking off, you may consider selling due to its increase in value – and with an exit plan, you can do so much quicker.

There are a variety of exit plans to choose from, but it’s wise for your strategy to consider implementing one. Doing so offers you that bit of protection and preparation for any unpredicted success or, in the worst-case scenario, failure.