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Exit Strategy

March 12, 2006

Q- I just started a new construction service business but I know this really isn’t what I want to do for the rest of my life. How do I decide on what methods are available for me to divest myself of my business? Also, if my business is not successful when should I pull the plug?

You have just asked some very important questions for all entrepreneurs.

The day you start a business is the day when you need to start planning your exit strategy. Not having an exit strategy is like cruising out into the Gulf of Mexico with no destination in mind and no idea when or where you will run out of gas. Not a great way to captain a boat!

Some of the typical exit strategies are sales, liquidation, and merger. Most small businesses are either sold or liquidated. Liquidation is frequently necessary when the business just does not have value apart from what the owner gives it.

Entrepreneurs need to decide how long they really want to run the business. Every year you need to evaluate whether you want to stay in business or exit. You need to ask yourself if this is what you really want to be doing.

Maintaining the high level of passion you need to keep your business successful over a long period of time is hard, so having an exit strategy in mind is necessary. I have seen some entrepreneurs stay at the helm way too long. They become complacent and the competition just eats them up.

Many, many founders of businesses have such a hard time exiting because they start to identify themselves with the company. Who and what they are becomes directly linked to the business. That emotional attachment often leads to delays in exiting, which can cause significant financial losses in a declining market.

Having an exit plan and revising it yearly helps you to know when the time is ripe for moving on.

The second part of your questions asks about terminating a new business. I highly recommend that each entrepreneur decide ahead of time how much money to put into the business. Once that amount has been exceeded, the decision to shut down the business should be automatic. If you can make this automatic, you can save yourself so much grief. I have seen too many entrepreneurs cannot seem to limit the funds they are willing to put into a new business. They end up throwing all of their money, retirement and future into a sinking ship.

Putting an exit strategy in place, both when you start up and when you grow your business, is crucial to your success.

You can do this.