April 10, 2020  
 
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Business Plan Investment Description

 

Discussing Exit Strategies In a Business Plan

A lot of business plans talk about how to get into the business, but completely neglect a strategy for getting out of it. Investors love plans -- especially ones that describe how they (and you) will exit the business.

It might seem a little strange to talk about leaving your company before it's really even gotten off the ground, but exit strategies are a vital and necessary part of your business plan.

Sure, investors want to hear about how much money you are going to put in their pockets. However, they are also concerned about how both of you will ultimately leave the business.

Exit strategies have a trickle down effect on decision making and goal setting functions. In a coherent business plan, everything is done with the end in sight. If you don't know what the end looks like, it's difficult to know if you are making the best choices for your investors and your team. Although the exit strategy you choose will depend on your goals for the business, here are some of the most common strategies for businesses that leverage venture capital.

  • Sell outright. Some businesses are launched with the understanding that they will be sold within a relatively short period of time. This is an easy exit strategy because it provides a clean break for you and your investors if you can find a buyer.
  • Sell ownership shares. Investors or partners can choose to sell their shares in the company to the remaining investors or to someone outside the current ownership circle. The guidelines that dictate the procedures for the sale of ownership shares are negotiable, but are usually agreed on long before someone heads for the door.
  • Mergers. Depending on the circumstances, a merger can either increase or decrease your influence in the company. But in most cases, mergers create opportunities for owners and investors to gracefully exit the business. If your goal is to ultimately pursue a merger, your business plan should address whether or not you are planning to maintain management control over the business and how the merger will impact your investors.
  • Go public. Everyone dreams about taking their company public, but few ever actually accomplish it because going public takes time and money. Still, it's possible to design an exit strategy built around an IPO. Just make sure you also include an exit plan B in your business plan.
  • Liquidate. If your business plan defines liquidation as your exit strategy you might be in trouble. Even so, there may be some situations in which liquidation makes sense, especially if the business is designed to be very short-term with a quick out for investors and owners.

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