A grand exit: launching a business with an eye to the future.

AuthorCoon, John
PositionEntrepreneurEdge

Formulating an exit strategy is part of 11 growing a business. Just as a runner trains before a race to reach the finish line, entrepreneurs cannot afford to put off thinking about how they will get a return on their investment down the road when they want to move onto another venture.

Crafting an exit strategy should be a priority before a business progresses from the start-up stage.

"It's got to be part of their operational plan from almost day one," says Craig Bott, president and CEO of Grow Utah Ventures. "The reason for that is they have some strategic options in the growth of their company that will take them in one direction or another. And that direction is really dictated by how they want to exit and what market they are pursuing. Knowing early on how they want to exit will really drive their strategy from day one."

An entrepreneur typically obtains a return on their investment through an initial public offering (IPO), a merger with a larger company or a purchase from an outside buyer. Considering an exit strategy early helps an entrepreneur decide which option is the best one for them.

Timing is Everything

Exiting a business too soon can cause it to fail. Waiting too long can diminish its value. Entrepreneurs must figure out how much time they need to grow a company to get the best value when it is purchased.

A delay in exit planning can cause an entrepreneur to lose leverage in obtaining favorable terms for his or her exit from the company. Business owners need to plan key details far in advance. If an entrepreneur intends to sell to a third-party buyer, for example, it is important to be able to fulfill due diligence requests from that buyer to inspect company books and records before making an offer.

If an owner has not planned ahead sufficiently before deciding to sell, it can result in receiving a lower offer price than anticipated. This can bog down the exit strategy because suddenly the entrepreneur doesn't have enough capital to retire or move onto a new venture.

"Owners often feel compelled to continue working in the business and do not sell because they're dependent on that cash flow from the business," says Jon Parry, a Salt Lake City attorney certified in business exit planning. "Whatever amount of money they reap from the sale, that needs to sustain their retirement or their next business. If...

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