How to Outline an Exit Strategy in Your Business Plan - dummies

How to Outline an Exit Strategy in Your Business Plan

By Steven D. Peterson, Peter E. Jaret, Barbara Findlay Schenck

It may surprise you to hear that you should give space in your business plan to a description of an exit strategy — the plan for how leaving your business at some point in the future — but you should, especially if you’re seeking investors, for two reasons.

One, investors will factor your personal exit plan into their funding decisions and two, they’ll make their decisions based in part on the investment exit strategy that accompanies your funding request.

Owner exit strategies

It’s counter-intuitive, but smart business owners have plans for someday leaving their businesses — and leaving them in strong shape when that day comes. Even if you expect to stay with your business for the foreseeable future, an exit plan is important for the simple reason that most owner exits are unanticipated. From health issues to relocations to divorces to partnership disagreements, out-of-nowhere situations can change your intentions.

By planning your exit early on, you put yourself in a position to steer your business toward your desired outcome.

For each of the exit options you consider, make a short list of the business capabilities and resources you need to have in place for the strategy to eventually become a reality.

In most cases, your written business plan should mention your personal exit strategy. Sketching out how you plan to leave your business, harvest its value, and ensure its ongoing vitality under new ownership is an important first step in guiding the final chapter of your involvement to a positive conclusion.

Investor exit strategies

People willing to fund your business want to know how and when they’ll receive a return on their investments. The most common investor exit strategies involve payoff through one of the following approaches:

  • Buyout of investor shares by owners or key business principles

  • Acquisition by or merger with another business

  • An initial public offering (IPO), which raises funds by selling shares of stock in your business

  • Recapitalizing and paying off early-round investors with funds from venture capitalists or other later-round investors

Be aware that simply stating your investor exit strategy isn’t good enough for serious investors. Be prepared to back your strategy with facts about acquisitions, IPOs, or major investments in businesses similar to yours, along with summaries of research you’ve undertaken that supports your assessment of the worth of your business as an investment risk.

Be ready to include a description of your investor exit strategy when and if you present your business plan to wealthy entrepreneurs who might serve as angel investors, to professional asset managers you hope will provide your business with venture capital, or others who may help fund your business.