What is your Business Exit Strategy by Dave Deicke
I know for a fact that many investors are only interested in investing money into an enterprise for a limited amount of time. They want to know when they will get their money back and what sort of return they will be receiving at that time. So when you draft your business plan to show potential investors you need to make sure that you have outlined your long term plans and a sound and solid way.
You have to ask yourself a few questions about your own personal plans and the business. How long do you want to stay involved in the business and how you can get the business to work. These are the kinds of questions you should deal with in your business exit strategy.
Think about who you are pitching your business ideas to.
Venture Capitalists are looking for high returns, fast. They expect your business idea to go public at the end of a certain period or make some other high profit strategic move. They will consider a 3-5yr investment plan, so you will need some sort of high return exit strategy at the end of that period. However, you should not opt for going public unless you are confident that it is a realistic goal for your company.
Angel Investors look for high returns but are not overly concerned with the type of exit strategy under consideration, as long as it seems sound. They will be less complicated than venture capitalists or institutional investors you may deal with and are more likely to be involved because of a personal relationship to you or the business.
There are a number of business exit strategies you can consider:
1/ Make the most of the business asap. This can be done by giving yourself a huge salary or other remuneration, regardless of the performance of the business. While it is not appropriate in most cases, there is no doubt that it can get a lot of your investment back out of the company in a short time.
2/ Liquidation simply closes the doors and wait for the company to be wound up. All debts will be paid off, and then whatever is left over will be clear to the shareholders.
While these two options above are quite practical and effective, they are professionally frowned upon and you may wish to propose a more sophisticated exit strategy if you wish to impress potential investors.
3/ Selling to a friendly buyer who may be able to take your business to the next level, maybe your days are done. You could pass to another member of the family, or sell it to your employees or customers. There are many businesses where this will be a realistic option, however it is difficult to predict it at the beginning of the venture.
4/ Acquisition could be done by a competitor, usually one wishing to expand, who agrees to buy you out. You can negotiate the price and terms with the buyer and there is a good chance that both of you can come up with a very attractive price. You will get a good price because together with your assets, the buyer will be willing to pay for good will, market share, client contacts etc. This means you can get a very good price for the business.
These are potentially the most lucrative of all, but when reality kicks in, they might not seem like the dream you thought they were.