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Holding and folding: Considering your exit strategy
Karen Osman, founder of writing company Travel Ink, advises business owners to be proactive and realistic
April 6, 2014 11:40 by kippreport
In the early stages of setting up Travel Ink, I remember talking to a consultant about my business. He asked me a lot of questions about how I was planning to run it, execute it, drive revenue and so on, but the one question I didn’t bank on so early in the game was: ‘What’s your exit strategy?’ In other words, what are you planning to do with your business in five years’ time? I’ll be honest, it didn’t seem important as my main focus was getting my business off the ground but, after doing research, [I found out that] this part of business planning was considered crucial, perhaps even more so when operating in a transient city, such as Dubai.
So, as an existing and potential business owner, how do you go about preparing an exit, what are the benefits and options?
Benefits of planning
According to Basil Peters, the author of Early Exits, every company needs an exit strategy that should be signed off by the founders before any external investment is made. He writes: “A good exit strategy, well matched to the characteristics of the business and the market, will improve the probability of success, shorten the time to exit and, often, significantly increase the ultimate exit valuation.”
There’s a myth that having an exit strategy means you are planning on failing. An exit strategy is not about failure, but rather about succession planning. Having a well thought-out and clear exit plan allows you to be proactive and realistic about your options as a business owner. The most important rule is to plan it well in advance and cover all possible scenarios imaginable. Being prepared is better than being blindsided.
What most business owners don’t realise is that, other than being the founder’s blueprint for when and how he or she will leave the business, an exit plan plays an essential part in how you manage the company and its growth strategy. Developing an exit strategy will help define your activities and decisions based on how you plan to leave your business. If you’re starting a business with the intention of being acquired, you’re going to have very different operations than if your plan is to keep it in the family.
Types of exit strategies
Sell the business. Some entrepreneurs believe that creating a business and then selling it is a travesty, as you are giving up your ‘baby’. Others are very comfortable with establishing a business with an aim of selling it. Whatever your personal views are, the reality is that revenue from the sale of a private company usually means a greater liquidity in your personal wealth. This, in turn, allows the entrepreneur the option of diversifying his or her portfolio of investments. Although this sounds like the ideal option, it isn’t as easy as it seems – get sound advice from professionals when considering this as your end game.
Company merger. Many business owners would like their exits to be a slow transition, whereby they can leave after ensuring that their businesses, clients and employees are well cared for and, perhaps, take on advisory roles. If this option is more appealing, then merging with a similar company might be the best option. Merging allows you to increase your market share and it also opens up the opportunity for your business to enter new markets and develop new products. When the time comes to exit, you can be fairly confident that your business can survive and flourish without your everyday involvement.
Close and exit. Just closing your business is not an option that most people would consider. There are a number of circumstances that may force you to consider this decision. Other than poor economical or market conditions, you need to have an objective and do critical evaluation of your business – is it too dependent on your particular skills to make a sale possible? If you find that this might be the case, don’t let it deter you from setting up your company, but it simply means that you should adopt a short- to medium-term business plan, with the objective of making as much profit as possible until the time comes when you close your business.
Whichever strategy you choose to employ, [remember that] you are not bound to it. Your business won’t necessarily develop exactly the way you imagined and that means your exit strategy might have to change too. What’s important is that, when you are setting up your company, you should consider your exit strategy, as it will give you clear objectives to guide your company’s growth and prepare you for when it is time to move on.
To read more of Karen Osman’s entrepreneurial diaries for Kippreport.com, click here.