exit strategy

Why It’s Key to Have an Exit Strategy Before Starting a Business

Some authors swear that writing the ending of a book first is imperative to the plot. Knowing where you want to end up can be invaluable, as it helps you plan out the beginning and middle of your story. If starting a business is part of your life story, it can be helpful to think about your exit strategy before you even write your business plan. This may seem premature, but it’s an often overlooked facet of business planning.

When you first start out, you might be thinking about a lot of long- and short-term goals. Revenue, product, services, location, impact and scale are each important to consider before you even begin to check off your action items. However, having an exit strategy will help you know how to get where you need to be and may help guide you toward greater business success.

Here are a few reasons why it’s important to start out with an exit strategy.

Look through a holistic lens

There are several different ways to exit a business, and some of them could dictate your entire business strategy. For example, if you know that you will want to liquidate at the end of your ownership, you may focus less on the long-term reputation of your business and more on things such as cash flow.

Similarly, if you know you’d like to leave the business to a family member or sell it to a friend, reputation would be vital to its survival. If you plan to sell to a private equity firm, you’ll want to focus more on top-end revenue and growth potential. No matter how you plan to exit your business, keeping it in mind will help you make decisions along the way.

Related: Are You Ready to Exit Your Business?

Clean as you go

If you’re making a big meal in your kitchen, would you rather clean as you go, or leave the whole mess until after dinner? Most people would (retrospectively) choose to stay organized as they cooked. The same idea can be applied to running your business. If you wait until you’ve had enough to start doing important repairs and maintenance duties, or organize and balance your books, you may be left with a bigger job than necessary.

Instead, balance your books monthly, quarterly, or at the very least, yearly. Do once-yearly deep cleanings of any physical locations and fix small things. These actions can go a long way toward the value of your business, especially in the cases of restaurants and retail stores. Service-based businesses (such as digital agencies) will still benefit from well-kept financial information.

Tech startups would benefit from focusing on potential growth opportunities, such as acquisitions of smaller companies than themselves, especially if those companies have relevant, under-marketed products.

Eliminate the stress

No matter what exit strategy you choose, it will take time to follow through. It will also take a lot of hard work on your part, whether it’s balancing books, making repairs to a brick-and-mortar location, or taking time to accurately value your business. Owners who have to sell their businesses quickly are often stressed, anxious and may not sell their business for its full value. Take into account any acquisitions your business has made and make sure all relevant financial information is in order.

If you’ve been planning this since the inception stage of your business, then the stress associated with your exit will be far less.

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Gain advantage in the marketplace

When you’ve reached the end of the line with your business, and you’re ready to move on, you’ll be able to do so quickly. Why? Since you were ready to sell your business the whole time you were running it, you won’t be walking a long road to get to the sales process. Furthermore, if you encounter someone who wants to buy your business out of the blue (it happens!), you’ll be ready to sell right away.

While many startups and small business owners have found the selling process to be stressful, challenging and drawn-out, it really doesn’t need to be. By creating your business from the perspective of selling, being acquired or leaving it to a family member, you’ll have a clearer picture of what you need to do from year-to-year in order to reach your business goals.

No matter what kind of business you operate or plan to operate, you’ll thank yourself down the road for having such a big-picture plan. Not only will you get the best value, but you’ll do it with the least amount of stress possible.

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