It’s important to develop an exit plan before you start your business. An exit strategy not only protects your investments, it also gives you peace of mind. By planning ahead, you can feel comforted by the fact that if things don’t pan out, you’ll be prepared.
Play it out in your mind
When thinking about your exit strategy, it’s good to envision a variety of scenarios. If things go well, would you want to sell your business to a larger company? What will you do if you lose your passion and want to chase a new dream?
If your business stops growing, how will you know when it’s time to stop pouring resources into it? Set guidelines for how much profit your business needs to make to be worth the time and effort involved. Be sure to give yourself a realistic timeline. You want to give your business a chance to flourish, and that takes time.
Decide now how long you are willing to operate a business that isn’t meeting financial projections. At what point will you throw in the towel?
You may have debt to deal with if you close your business. Take this into account when you look into borrowing money. Some types of loans allow you to declare business bankruptcy, which doesn’t affect your personal credit. Other loans must be paid back even if you declare bankruptcy. If you’ve relied on credit cards, you might be able to negotiate a debt reduction.
Consider your options
When developing your exit strategy, there are many options to consider. Even if your business didn’t meet your financial goals, you may be able to sell it. A larger company may see the value in your remaining assets such as brand recognition, equipment, inventory, or product packaging.
Another option is to pivot. You may decide to take your business in a new direction, to reinvent it and use your brand assets in a new way. You could also choose to liquidate your business, selling everything at a discount before you close. Instead of spending time running sales, you might be able to sell all remaining inventory to a company that specializes in liquidation.
Talk with your partner(s)
If you have one or more business partners, discuss potential exit plans together. For example, what will you do if one person wants out of the business? Will they have to buy out the other partner or partners? Agree ahead of time how remaining assets could be divided fairly if the business closes.
It’s also helpful to consider positive financial scenarios. What will you do if someone wants to buy your company? How will you evaluate potential buyers? Discussing these scenarios now will give you some guidelines and help ensure you and your partner(s) are on the same page.
This isn’t set in stone
Your exit strategy isn’t set in stone and you may want to revise it as your business grows. Before you get too emotionally invested in your business, decide how long you are willing to invest time and money into a venture that isn’t turning a profit. If you wait until things aren’t going well, you’ll be making important financial decisions while under stress.
Don’t be caught without a plan. An exit strategy exists not only to help guide your actions, but to protect your assets. If your company becomes unprofitable, you may find yourself exhausting your resources and having a hard time deciding what to do. Whether your business is a smashing success or falls flat, you’ll be grateful you put thought into an exit strategy.
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