Advising Today’s Business Market

The Art Of The Exit Strategy

Whether buying or selling, you need an accurate roadmap for risk, opportunity

by Philip Alberstat

Mr. Alberstat is Managing Partner of Embarc Advisors, a mergers and acquisitions consultancy. Visit www.embarcadvisors.com.

The business world is constantly in flux as companies of all types and sizes across a variety of global industries are discovered, bought, sold, acquired, absorbed, or lost. When building a business, a solid exit strategy is one facet often glossed over, regardless of how important it is to the overall business plan.

It is typically not until a business owner’s feet are held to the proverbial fire that an exit strategy is considered. By that time, however, shoddy planning and last-minute decision-making can make executing such exit strategies less than ideal, if not nearly impossible to materialize.

To proceed in business with the protection of your assets and investment held in the highest regard, a robust exit strategy is critical, but this strategy needs to be crafted long before circumstances force one’s hand. Whether selling one’s business, acquiring a new business, or being acquired, clearly outlining one’s exit strategy can help business owners avoid costly mistakes.

The Purpose Of An Exit Strategy

Exit strategies are a road map for future business plans, allowing the company to take advantage of any opportunities that may come its way while keeping its ultimate end goal in sight. Such strategies include mergers & acquisitions (M&A), a sale to a strategic investor, or taking a company public, but the ultimate goal is to secure the company for the future and have an idea of its future financial viability.

When a founder is first launching their startup, they may not even have the bandwidth to consider the future date when they sell that venture, but the advent of any new business is a major risk that investors hope will translate to equally major rewards. For many ventures, that reward comes when someone offers the founder a decent amount of money for it.

An exit strategy outlines what milestones or threshold the business needs to reach for the owners to be ready to sell. Exit strategies should also include information such as stock options for stakeholders and the guidelines that should be adhered to for a smooth transition should the company be acquired.

When a company is launched with a well-planned exit strategy already in place, it starts with an immediate leg-up on any competition that ignores the need for one by setting itself up to be attractive to potential investors in the future. As such, its leaders also create an additional layer of insurance for a future transition that is more likely to be successful.

Optimizing Deal Structures With Financial Advisors

The startup game is risky, to put it lightly, as research shows that a staggering 90% of startups eventually fail. Out of the ones that do succeed, only 1.5% result in a successful exit totaling $50 million or more.

These statistics reveal the importance of not only crafting a sound exit strategy from the beginning but also heeding the advice of skilled and experienced advisors who can help you optimize deals and avoid becoming one of the 90% — or one of the companies that comes very close to a stellar exit or acquisition deal, only to lose out in the end.

Navigating an M&A or sale of a company can be tricky, but financial advisors who are adept at avoiding pitfalls and crafting mutually beneficial deals can help business owners come to the best possible result for any deal they are considering. Experienced advisors know the ins and outs of acquisitions and sales and can give expert advice when it is most needed.

Through analytics, industry research, and expert guidance on how to best tell your startup’s story, financial advisors can help suggest the most advantageous path for a startup or help the business raise capital for an acquisition. They can also assist startups in seeking a target for a merger, acquisition, or sale and with the necessary negotiation process.

Exit strategies are a road map for future business plans, allowing the company to take advantage of any opportunities that may come its way while keeping its ultimate end goal in sight...

Strategic maneuvering is crucial when dealing with any sale or M&A. Successfully completing a deal requires research, consent from all involved parties, and the approval and insight of stakeholders, board members, and owners of the businesses. Through a financial advisor, the often tricky and emotional path of an acquisition or a sale — any exit strategy completion — can be navigated with ease.

A seasoned financial advisor will not only have experience with mergers, acquisitions, and sales of companies but also other exit routes. These can include family taking over a business, selling one’s stakes in a business to a partner, or even liquidation or bankruptcy, as unsavory as those choices may be. With a financial advisor’s guidance, the correct route can more easily be chosen.

Preparing For Successful Exits And Acquisitions

While having a sound exit strategy from day one is the best way to prepare for a successful exit or acquisition, bringing on experienced help from a financial advisor is also an excellent way to prepare. However, not every startup founder is well-versed in exit strategies, so becoming aware of the best ways to ready your business for a lucrative exit through research and education is another way to prepare for a successful future exit.

Still, you must weigh the pros and cons of the exit strategy options long before you are forced to choose. M&As can be beneficial because they often allow business owners to set their own terms and pricing, but they can also be time-consuming and stressful — sometimes costly — and up to 90% fail. With an IPO exit, you can often expect a high level of profit, but this requires an extraordinary amount of scrutiny and reporting.

To prepare for a successful exit, minimize wasteful spending and excess from the beginning of your venture. The goal, of course, is to always keep expenses low and revenue high which not only better prepares you and your startup for the expense of the exit strategy, but also keeps the business attractive to possible buyers and investors. When it comes time to sell or buy, the valuation of a company is essential. Keeping your expenses low will help with this valuation in the long run.

When preparing for a successful exit as the business’s leader, you should also ensure your management teams and advisors work well together and are all in alignment regarding your goals for the exit. When a company’s leadership struggles, the business will struggle as well and run the risk of becoming another statistic among the 90% of failed startups. Strong leaders and expert advisors bring experience and creativity to the table that can help make an eventual exit successful.

Never Overlook The Importance Of Scalability

According to statistics, 70% of startups fail because they try to scale too quickly. As such, it is imperative that you have a sound scaling strategy along with your exit strategy. Start by evaluating your business model to ensure it is truly scalable. You may have a passion for a specific business, but if it’s not scalable, a successful (and profitable) exit is unlikely to occur and the deal will be dead in the water before it even gets off the ground.

Exits that are ultimately profitable and advantageous to all parties involved begin with making connections and building relationships within the industry — including with mentors and advisors. By cultivating relationships with prospective buyers, sellers, venture capitalists, accountants, and other industry experts, you can place your startup in the sight of those key stakeholders who can help you reach that desired exit.

By relying on the expertise of advisors, keeping your finances in check, and crafting a robust exit strategy, business leaders can prepare their companies to be attractive to buyers or other companies seeking a merger. It is never too early to start planning and preparing to make informed and expertly guided decisions on growth opportunities and the future of your venture.