When starting out on your business venture, exit planning may the last thing on your mind. In reality it should be the first.
If exit planning is all about ‘getting out’ or ‘selling up’ then you may ask why expend time and energy on it when your priority is to get the business moving and getting revenue in the door? The reason is simple: you want to know you are doing the right things in building and scaling your business so that one day you can maximise the rewards from your efforts. You can’t do that without planning with the end in mind.
There is a temptation to deal with your exit as and when you get to the stage of wanting to sell or step-back. Unfortunately, that means missed opportunities and the real possibility of getting less from the business than your efforts deserve.
Consider these questions before you start and during the early stages of business ownership:
- What type of exit will you want to target e.g. a management buy-out, buy-in, a trade sale?
- Are you starting a niche, specialist business where the market for sale is very specific, if so are you building the business with your eventual buyer in mind?
- What would a buyer look for in your business that would encourage them to offer the best price?
- If you want to attract investment into the business to help the scale-up how much more shareholding dilution will you need to accept if your business is running below its potential?
- If you are planning multiple rounds of fundraising and investment to move through start-up, proof of concept, first revenues and into scale-up do you have a consistent story about your exit as part of the pitch so investors can see how they will get a return on their investment?
- As you progress are you clear and consistent in your reasons for exit or dilution?
- If you are one of multiple owners of your start-up, have you discussed and agreed why you have decided on this venture and your respective time scales for exit? Alignment from the outset will prevent damaging and value diluting disputes later on.
- Even in the very early stages you may receive an unexpected approach for your business i.e. before you had considered a sale, will it be in ‘good shape’ to get the best possible offer?
- As you consider each strategic decision do you have a clear end goal in mind that you can rely upon to guide you?
Having a clear exit in mind and running the business with this end goal as your guiding principle will result in a better run, more profitable enterprise. Exactly the type of business that attracts the best offers and exactly the type of well-run business you should aspire to own. If your plans change as you progress, you will know that whenever you decide to exit you have made the best decisions to build business value.
Whether you like the phrase ‘exit planning’ or not, the principles of good business planning towards a clear end goal are what an exit planner can help you with. There isn’t a time that is ‘too early’ to consider where you are going and therefore making the best business decisions – it will help you achieve the best final outcome and provide you with an attractive, profitable business on the way.
Ask Henchards to help your start-up, formulate its end goal and support your journey.
(Photo by Aron Visuals on Unsplash)