Reasons to include an exit strategy in your business plan

An exit strategy is a valuable component of a business plan. While it perhaps sounds strange to plan for the end at the time of beginning a company launch, there are many solid reasons for outlining a specified business timeline right from the beginning.

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Interested parties

It almost goes without saying that investors who are putting their money into the company will be highly interested in where the business will be in the future and what its long term goals are. Not only do they want to know any potential risks or losses, but also what could be gained by investing for the designated time frame.

Providing this information from the get-go can help investors formulate a solid decision of whether or not, or how much, to invest in the company. Whether a bank or an investor funds the business, either way there is going to be a vested interest in what happens to the money. The investor will want receive a return on the investment or, in the case of a bank, repayment of a loan.

An exit plan is an important part of this strategy and, depending on what kinds of investors were brought on, will determine whether or not long or short term interest in the company is desired. However, having an exit plan is not only beneficial for investors, but for the business owner as well. Entrepreneurs typically put a lot of their own resources into a business, and if it is a success, an exit plan will help them "get their money out" when the time comes (Entrepreneur.com).

There are many good reasons to include an exit strategy in your business plan. The plan can change along the way, but it's good to know your options. In order to decide on possible exit strategies, it is a good idea to ask yourself where you would like to see the business in a few years. Five years is typically a good number to use as an average point of time.

Various common options for an exit plan

Sell the company

Depending on the type of company and whether or not it has any staying power, business owners may know they want to move on after the designated time frame and plan to put the company up for sale. The benefit to this is cash is received once a willing buyer is found. If a good buyer is selected, the company can continue and develop a legacy.

Merge the company with another or go for acquisition

Sometimes businesses are established with the intention of being absorbed into another company at a later date. There are pros and cons to this choice, but the combined resources of two companies often make for an attractive option.

Go public

Becoming an IPO is an option for a small percentage of companies who have their eye on the public stock market. It is important to realize though that once this happens, the dynamics of how the business is run and/or perceived can change significantly, and this will be a dramatic change. Are you prepared for this to happen?

Franchise

In some instances, your business model may be a good candidate for a franchise. If the business works well and can be established as a mold for other entrepreneurs, this may be an option that has many tangible benefits.

Close up shop

Liquidation is not an option many entrepreneurs consider from the get-go, but some entrepreneurs take this strategy. Perhaps the business idea is a trend and not going to be a long-term operation or maybe the owners just want to earn their money and retire. Whatever the reason, this may not be the best strategy and, if investors or shareholders are involved, could pose a problem. It also could have a negative effect on reputation, especially if the owner plans to move into another kind of business. Memories of liquidation could follow and disappointed customers may not be so welcoming.

Pass on to family members

Some of the most successful long-term businesses are those which are passed on through generations. Developing a strategy that includes turning into a family enterprise could be a wise decision depending on the business and dynamics of the family. Established enterprises tend to gain consumer trust and remain profitable if a good reputation has been grown. Everyone needs to be able to get along though, or else could create problems.

Exit strategies vary but whatever the case, it is a good idea to choose one right from the start when writing up an initial business plan. That being said, it is always smart to leave a bit of flexibility in a business plan as circumstances and environmental factors can change along the way. This flexibility will allow the business to adapt as necessary.

Image credit: Geralt/Pixabay

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