Whether you’re setting up the next Facebook or running a café, all entrepreneurs need what economists call an “exit strategy.” The idea is that, after a certain point, your business will run its course and the best thing that you can do is sell it.
Unfortunately, most people who get into business never think about how they’re going to get out. They assume that their enterprise will continue forever but, unfortunately, that’s not how the world works. Things chop and change, businesses come and go, and even mighty corporations can fall.
What Does An Exit Strategy Actually Mean?
At root, an exit strategy is something that you initiate when you achieve your business’s highest goals. For instance, you might decide that you want to get out of your venture once you’re selling products all over the world. Or perhaps you’ll only be satisfied when the value of your firm reaches a certain level.
In some cases, entrepreneurs don’t want to quit. Instead, they want to stay with their firms, running them from on high. This approach is viable, so long as the company remains successful. If it’s a sinking ship, you want to take one of the lifeboats well before it plunges into the briny depths.
Why Do Business Leaders Have Exit Strategies?
There are all sorts of reasons people develop exit strategies. These include:
- Maintaining the value of the business that you’ve built
- Creating a direction in which you’d like your business to grow
- To maintain certain tax advantages, or to pass a business onto a spouse or heir
- To generate income for disability or retirement
- Allowing for a smooth transition of business ownership to existing shareholders
What Types Of Exit Strategies Are Available To Business?
There are several different types of exit strategies available for businesses, all of which help owners maintain their original capital.
The most common is to sell the company. If you know where to sell a small business online, you can often make a lot of money.
In some cases, exit strategies involve selling business assets. Here, companies effectively downsize or go dormant until the next cycle begins, retaining some liquid capital in the firm for future investment.
Exits can also occur via mergers or acquisitions. While this might sound like the realm of big business, it’s not always. Many corporations snap up smaller businesses with amazing brands and then add their products to their portfolio. What’s more, they tend to pay extremely well: perhaps millions of dollars.
If you’re someone who runs or owns a business, you should not underestimate the importance of having an exit strategy. Even when things are going well, the situation can turn on a dime and you can find yourself hopelessly out of pocket. Acts of God, deaths in the business, divorce, retirements and other issues can all get in the way of making your company a success.
Even if you don’t think an exit plan is important for you personally, it matters a great deal for your employees.