Starting a Business? Create an Exit Strategy
“Begin with the end in mind” is one of Stephen Covey’s 7 Habits of Highly Effective People — but it’s also a great thing to do when starting a business.
And I mean that literally: figure out an exit strategy for your business before you even get it started.
Every self-employed person leaves their business someday, either by choice or by necessity. Deciding what that could look like ahead of time often helps the business run more smoothly from the get-go.
Possible exit strategies
So, what are the possible exit strategies? In a nutshell, you can:
- Sell your business outright
- Be acquired by/merge with another company
- Close it up without selling
- Have it broken up/dissolved by outsiders
- Leave your interest to someone else upon your death
Obviously some of those options are more attractive than others, which is exactly why it’s important to plan ahead.
Think through potential negatives
It’s especially important to think through the negative possibilities so that you can avoid them. Sole proprietorships and partnerships often have special risks.
People get divorced, and their spouse ends up with half ownership. If the divorce isn’t pleasant (and how many of them are?) suddenly being saddled with a partner that doesn’t want the same thing you do makes it difficult to be successful; and it’s even worse if they actively want you to fail.
If you start out your business as a partnership, a similar thing can happen — even if you and your partner(s) still all get along. That’s because you may want to take the business in different directions, want to fill different roles, or have misunderstandings.
Spelling out and agreeing to exactly what will happen in case of unpleasant situations in writing is critical, as is having your agreement reviewed by a qualified third party.
Remember the positives too
Don’t for get to imagine what you’d actually like to see happen while you’re in the planning stages. If you’re wanting to start a business that brings in passive income, make sure you do it in a form that can be easily left to your heirs when you die.
If you’ve got dreams of being acquired by a megacorp or going public and retiring with millions, make sure you’ve got all your bases covered. Public corporations undergo a great deal of scrutiny, and that means keeping careful records. It’s also important for them to be able to be run by outsiders, which requires clearly defined processes, roles, and procedures.
An exit strategy is a plan for success
While it might seem odd to start a business by figuring out how you’re going to end it, doing so forces you to think through a variety of possible scenarios and plan for how you would handle them. You’re less likely to be caught in unexpected situations, and you’re better able to avoid the negative possibilities. So investigate your options, get the exit strategy for your business in order, and plan for success.
Thinking of starting a side business but don’t have an idea nailed down yet? Check out 101 Ways to Make Extra Money in Your Spare Time.