When and How to Plan an Exit Strategy for Your SMB
As a small business owner, you probably don’t want to think about your business ending. But it’s better to be prepared than run the risk of coming up empty-handed – even if you’re just launching your brand.
Rob McLaughlin of the Business.com community asked: “At what point should I start thinking through an exit strategy?” This is a common question for many entrepreneurs, so we asked experts to share their input and advice for doing so.
Start with end in mind
You might think it’s counterproductive to think about the end of your business, especially when you’re first launching it, but it’s never too early to do so.
Sarah Brennan, founder, CEO and principal strategist of Accelir, said that the first question she asks startup founders or leadership teams is: “What is the end goal for you – to grow, stabilize or sell?”
“Even if the exit plan is five to 10 years out, working with the end in mind impacts how you approach everything from product and go to market strategy to who you partner with and what clients you target first,” said Brennan. “Companies can run into obstacles when they haven’t thought through what they are working toward when offers to buy come in, or worse, when they haven’t built the business in a way to be bought.”
“You should always have an exit plan in mind from the moment your business idea is conceived,” added Adam Wilkinson, CEO of Hollywood Mirrors. “Then, when you start your business, your sole focus and number one question every day should be ‘how can I maximize the value of my business?'”
Clark Vitulli, founder and CEO of Music City Chief Executives, works with a client who started his company two years ago and built it to $12 million. Even at the age of 30, the client is already meeting with others to discuss exit planning.
“Within two years, he’ll have all the ground work laid to have a happy exit on his own terms,” said Vitulli. “He’ll be able to decide when he exits, and which of the four ways to exit – pass his company to family, sell to inside buyers, sell to outside buyers or strategically close it. Again, on his term, and on his timetable.”
Steps to take
“You don’t have to know the exact exit strategy because you can’t predict the future, but you can plan for it,” said Seth Levine, founder, president and chief officer of SL Design X, and a member of the Business.com community. He added that you should consider how long of a venture you want it to be and explore the different types of exit strategies, like different investor plans, acquisition and IPO.
Wilkinson also outlined six steps to follow when planning your exit strategy:
- Mitigate risks
- Reduce unnecessary expenses
- Retain existing clients
- Increase average order value
- Increase average order frequency
- Ramp up word of mouth and referrals
“Even if you don’t exit the business when you wanted or … you want to be in the business for your whole life, your business should be in a stronger position with this focus and mindset in growing the business,” said Wilkinson.
Vitulli advised to involve legal, accounting and financial planning help, and an M&A expert and certified exit planning strategist. They’ll help you coordinate while you continue to run your company successfully day-to-day.