Figure out how youll leave your small business if you want it to succeed.
That seemed like strange advice when I heard it during a Wake Tech Community College class called Planning the Entrepreneurial Venture, which focused on setting up and operating a small business.
But then the idea started to make sense.
An exit strategy tells you what will happen when you move on from your business. It affects how youll set up the business and run it day-to-day. And if all goes as planned, it helps you get what you wanted from the business.
However, many businesses dont have an exit strategy, which could greatly impact a companys future.
Planning an exit strategy is the most commonly overlooked consideration of a business strategy, yet the exit strategy plays a key role in determining the strategic direction, says the resource guide at Entrepreneurship.org, which is part of the Kauffman Foundation. By not planning an exit strategy beforehand, business owners, their heirs, or their successors may find that the options in the future are limited.
Here are some possible exit strategies:
• Dissolve the business and retire.
• Sell off its assets.
• Sell to a partner or employees. This will allow the business to continue on as the founder built it.
• Position your company to be acquired and stay on in a smaller role. Many tech startups take this approach.
• Merge with a competitor. This could result in the largest payoff.
• Transfer control to heirs to provide a family legacy.
• Go public.
You have to begin with the end in mind, said Craig Mathews, chief of Big Think, a Holly Springs company which provides leadership development, innovation and business strategy services for midsize firms. Thats why exit strategies are important. You will build (a company) differently depending on what kind of exit strategy you have.
Heres how its particular to small business:
For a company with a few thousand employees up to one thats global, like an IBM, that big a company doesnt have an exit strategy: It has a continuity plan to make sure it goes on no matter whos at the helm, Mathews said.
Jeff Karges, who specializes in the complexities of the family business, has seen what happens when a company does not have an exit strategy in place.
He stresses the importance of a succession plan, which says what happens when the original owner is gone.
Eighty-six percent of family-business owners say they think their company will go on to the next generation, says Karges, a senior partner in Relationship Matters, a business consulting firm in Raleigh. But of those, 95 percent have no succession plan.
They just think that some way, somehow, this will happen without any real intention.
Sheon Wilson is a personal stylist and writer in Durham. Find her on Twitter @SheonWilson.