When you’re still experiencing the exhilaration of founding a new business, planning an exit strategy may appear counterproductive and pessimistic. Still, it’s possible to argue that your very first business plans should include your exit plans. An exit strategy doesn’t have to invoke negative feelings at all. Instead, it can help you cement and realize your vision for your business better. Once you determine your end goal, it’s a lot easier to figure out how to get started.
The Importance of Creating an Exit Strategy Early
Your exit plans can impact the direction that you’ll take your company, impress investors, and even provide you with peace of mind down the road. Nobody suggests that you should plan to fail, but you should create plans to make the most of your success.
Consider some examples of ways that exit plans can help you long before you plan to leave your company:
- You may picture taking your company public at some point. In this case, you may want to implement accounting practices that you won’t need to bother with if you always want to maintain your business as a sole proprietorship. In fact, documentation of your exit plans should impress investors because these plans will help them understand your company’s direction and even how they will end up getting paid.
- Do you plan to make a lifetime career out of your company and then pass it along to your children as a legacy? If you include that in your exit strategy, you’ll remember to feel your kids out for interest and start grooming them early. You’ll also make plans to compensate those heirs who would rather pursue their own visions than work at Mom or Dad’s company.
Short-Term Vs. Long-Term Exit Strategies
Before you plan your exit strategy, you should spend some time thinking about how long you will want to stay involved. Some entrepreneurs love to start companies and then move on to the next venture after they get it established. Others hope to establish a legacy that they can oversee as long as they live and even influence after they are gone.
These are some examples of short- and long-term exit plans you could consider:
- Short-term exit plans: You may hope to create a unique value proposition and start earning revenue quickly in order to sell your company to a competitor or investors. You may want to earn enough money to retire or begin another venture. If your company does very well, you might even go public and cash out. Remember that some very popular companies, like Reddit, were acquired by larger corporations before they ever started to make a profit. A company must have a value that investors can determine, but they don’t necessarily even have to be solidly in the black yet.
- Long-term exit plans: Some entrepreneurs plan to run their business until they approach retirement, begin to pay themselves a larger salary, and simply let the company run dry. In other cases, you might bring in a partner who you plan to transition into full ownership while you transition out. This partner could be an outside party, one of your top employees, or a member of your family. You don’t have to know who the future owner is yet, but it’s good to know that you want to look for one.
You might think it’s way too early to start thinking about how you want to leave your company. Maybe, you’re just getting started. In some cases, you might even associate an exit strategy with failure, but you know that you won’t be around to run your company forever. You don’t have to chisel your exit plans in stone, but you should create them and then revise them periodically as circumstances change. Instead of just thinking of your exit strategy as a way to get out of a bad situation, you should picture it as the way to make the most of a good one.