Ins and outs of good exit strategy

KEY: IT’S ABOUT SUSTAINABILITY AND BEING ABLE TO MEASURE PERFORMANCE AGAINST GOALS

There are many different ways an entrepreneur can exit a business.

The thought of parting with a business you’ve grown from the ground up may be unsettling, but Gugu Mjadu, spokesperson for the 2018 Entrepreneur of the Year competition sponsored by Sanlam and Business/ Partners, says it is better for both your business and yourself to plan for this as early as possible.

“The challenge that business owners often face in this respect is comparable to the difficulty that new parents have with imagining their children grown up and leaving for university,” she says.

“Imagine, however, if parents did not plan ahead for the cost of their education – that would be detrimental to the future of their children.

“The same could be the case for your business.”

Mjadu says that a good exit strategy is about sustainability and being able to measure your business performance against the goals you have set for it.

“It’s really about being able to say, ‘this is when the work is done and I can exit the business or take on a different role – this is what success looks like in terms of monetary return on investment and other business growth indicators’.

“The lack of an exit strategy could be telling of a fundamental lack of measurable business goals and this needs to be addressed,” she says.

From immediate liquidation to liquidation over time; family succession; selling to staff or external investors; the open market or another business; or the gruelling but profitable exercise of taking your company public – there are many different ways in which an entrepreneur can exit their business.

But Mjadu says that whatever the process, a strong and solid strategy is essential.

She shares five key points of a good exit strategy:

1. Mjadu says that a good exit strategy should reflect a core understanding of all the intricacies of your business and should be able to tell you when the lifecycle of your business (or of your involvement in the business) should come to an end. This is usually done by including a set of tangible measurables or objectives so that it is easy to ascertain when these have been achieved. 2. A good exit strategy considers the economic, social and political environment at the time of your exit. Mjadu says that this is important in order to plan for a secure financial future. “Failure to think about this could result in short-changing yourself by exiting during a tough economic climate when the risk to buyers reduces the value of your business.”

She references the case of Victoria’s Secret when founder,

It tells you when you are done It sets out the right environment within which to exit

Roy Raymond, sold the failing business for $1m unknowing that it would later grow into the multi-billion dollar empire it is now.

“While Raymond’s exit was ultimately necessary for Victoria’s Secret’s growth, he sold it in 1982 during the global recession of the early eighties – one of the world’s biggest financial crises and this influenced the selling price at his exit.” 3. It is important to consider the impact your exit could have on investors and staff, says Mjadu.

“Closing shop, for example, means that your staff no longer have employment at your business. Selling could mean the same.”

She adds that it is important to consider ways in which your exit could also benefit these stakeholders – for example, selling to a bigger business could mean more career opportunities for your staff, as well as

It compensates those who have contributed to the life of your business

continued job security. 4.

Mjadu says that entrepreneurs often struggle to recognise their own true worth, especially when this involves attaching a monetary value to what has been achieved.

“The time of exiting a business is no place to shortchange yourself. You need to get out what you put in,” she says, explaining that this means ensuring that you are financially secure before and while you go into your next venture.

“Your needs for retirement and medical insurance, as well as the maintenance of your living standard, should be met.” 5. Your exit should enable and encourage you to continue to be an entrepreneur – and to look forward to the next journey.

“Whatever your strategy, it should egg you on to more entrepreneurial activity including becoming a mentor to aspiring entrepreneurs.”

It compensates you It sustains your entrepreneurial drive