Starting a business for the first time is daunting. It keeps you awake at night running through all the possible ‘what if’ scenarios that might occur. When you finally pluck up the courage and start thinking ‘why not?’ and start planning, the last thing you are likely to think about is your exit strategy.
Yet that really ought to be the first thing on your list.
Unlike life where the motto “it’s not about the destination, it’s about the journey” rings true for most – a business very much is about the destination. Without understanding what your business ambitions are and what your personal goals as a Founder will become, you are unlikely going to be able to fulfil them. Having a planned exit strategy will support many of the business decisions you will make along the way. If your exit strategy is to sell after five years, then your focus needs to be on growth and profitability. If your exit strategy is to take over the world in 20 years’ time, then your focus is on product development and hiring the best people for the job to continue to take it to the next level. Your exit strategy might even be not to exit or sell your business – instead to enjoy a lifestyle business to fit around your family. In which case you shouldn’t be seen in the office burning the midnight oil.
Running a business can be all consuming and having focus on what your end goal is provides you direction in times of challenge. Exit planning isn’t discussed often because it happens far less than setting up a business. However, once you have built a successful business it often is the main gripe that Founders didn’t start planning their exit at the outset. As it was for me.
Having successfully sold my first sponsorship agency business a short six years after launching it, “think about your exit” advice was the only piece of advice I didn’t end up taking when I set it up in my bedroom (paying rent taking priority) – and I paid for it in the end. Had I been clear at the outset that I wanted to exit, I would have been gearing my business up to sell much earlier – and would have likely had a better offer because of it.
I will not be making the same mistake twice and have put together my top five tips to planning your exit at the outset:
Ask yourself some tough questions
Why do you want to start a business? Every entrepreneur has a personal driver to going it alone and it’s important to remember what makes you tick and what makes you happy. Your exit strategy should reflect the reasons why you set it up in the first place and can ensure to keep you on the right path as the business grows.
Your exit should form part of your entire business plan with key performance metrics that will be measured against the end goal. As your business adapts and grows, these can be changed but it’s important to have this integrated within the business DNA.
Should you ever need investment in the future or even potentially sell some equity to staff, having a clearly defined exit strategy in the business plan provides confidence that it isn’t just ‘pie in the sky’ thinking.
You can’t have it both ways
Want a work life balance whilst also selling your company for millions a couple years on? The truth is that is an unrealistic goal. Selling a business is very different to running a successful business and scaling to sell is no mean feat. It likely will involve significantly reducing your salary and working more hours in a week than you ever thought possible, but if you are willing to put in the graft then the yacht at the end of the tunnel can be possible. Buyers are interested in proven profits – you must show them consistently over several years that it can be done and that takes work.
Your staff are your lifeline
Regardless of whether you sell your business with an earn out or not, it’s vital that your employees can continue driving the business forward without you. Buyers are not interested in a one-man superhero that closes all the big deals and whilst simultaneously running the HR department. A Buyer wants a business that can scale and run without you. In order to do this, you need to ensure clear processes are in place and that your staff each have clearly defined roles so when the time does come to step away, it’s a smooth transition without any financial set back or risk to the Buyer.
Having your staff excited about the future is also important to ensure a smooth transition. Not every exit is the same, but where possible try and involve your senior staff in the exit discussions in order to gain buy-in across the entire business.
Every exit is different because every Founder is different. Talk to other entrepreneurs who have managed to sell their company and find out what challenges they faced so that you can try and avoid them for yourself in the future. Unlike first dates, you are unlikely to have many exits so it’s not something you can learn by experience. Therefore, learn from the experience of others to help build your own personal exit strategy.
Thinking about your exit when planning to set up a business seems counterintuitive but is as important as goal setting ensuring you remain focused on the end goal.