How to develop an effective exit strategy - The Finance Team

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How to develop an effective exit strategy

People often ask me: so, what is Entrepreneurship all about? I have pondered this question many times and to date, I would say that Entrepreneurship is nothing more than a business experiment of one’s imagination. Because of the nature of experiments, a fair degree of risk is involved and I would bet that you have taken quite a risk, including countless ups and downs and blood, sweat and tears to get your business to a level where you thinking: its time let go.

This is where the topic of having an exit strategy often comes up when entrepreneurial owners decide whether they should be staying in the business that they have built up over the years, as well as a fair degree of doubt causes you to think in all sort of directions only to come to the realisation that you probably don’t actually have an exit strategy for yourself in relation to your business. So why have an exit strategy and how do you develop an effective one? Is this an escape route or a genuine exit plan to exit the business at the time you feel it best represents the value of the business?

The reason why I would like for you to genuinely focus on having an effective exit strategy is simply this: I want you to start with the end in mind in that I want for you to ask yourself: when I’m done with this business, what will it be worth and can it be sold or acquired for this value? Remember that as an entrepreneurial business owner you may not have the luxury of a pension or provident fund and why not see having an exit strategy as a way to cash in your sweat equity and hard work that you had put into the business? There are indeed a number of ways to plan for an effective exit strategy, so let’s look at some of the ways in which you could get value out of the business.

The first way is to basically liquidize the business over time by paying yourself generous salary and fringe benefits. I would guard against this approach as you literally bleeding the company and eroding its net asset value. The second approach is that you decide to call it a day and have the company liquidated. Once again, not the best approach as you have not realised the true value of the company. The third option is where there is a willing buyer, willing seller arrangement to someone in the know. Careful with this one as the buyer may forever in a day spin a story that he got sold a lemon business that had more than one skeleton in its closet.

The forth option is you decide to sell the business as is as a going concern. Depending on where you are, be mindful that the acquisition does not lock you out of the industry totally (just in case you want to stay in or come back later) and this smart acquirers do through non-compete and restraint of trade legal clauses. The fifth option is where you decide to list the company. This is a whole new ball game that involves outside shareholders (and potentially lots of them!). Listing is also quite expensive.

So what do you do? Personally, I would suggest perhaps re-looking at the way the entrepreneurial  business should be built and left behind by asking yourself: what legacy do I want to leave behind and whether you have been able to fulfil your purpose through your entrepreneurial vehicle, that being your business. Develop an effective strategy and a vision that speaks to this and start the process of exiting the business in a way that works best for you, and no one else. Why? Because you are you, and no-one else!

 

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