Many businesses plan their exit strategy only after they have decided to exit. These companies undervalue the importance of having an exit strategy in place. But an exit plan is just as vital to a company’s success as its primary business plan. The right time to prepare an exit strategy is before you need it, not after you have already decided to exit.

Here are the top five reasons why it’s vital to have an exit strategy:

1. It helps determine the roadmap of a business.

An exit strategy is a plan to get out of a business venture. It is a strategic decision that will affect the company’s future and how it moves forward. There are three ways in which an exit strategy determines the business roadmap and the company’s future:

  • A merger or acquisition can be an excellent exit if it benefits both parties. For example, suppose one company wants to sell its products in another country, and another has already established itself there and has access to the market. In that case, it may be time for them to merge or acquire the other company.
  • If you have apprehension about ever making money from your business venture, then you need an exit strategy that allows you to get out quickly with minimal loss. This could mean selling your shareholding at a low price or transferring ownership of your assets outside the business, so creditors can’t take them if it fails.
  • If you want to keep your assets but not run your business, you can transfer ownership to a new owner or sell higher-value assets.

2. It sets the peak position to exit.

An exit strategy is crucial to business development because it determines the company’s future. Having an exit strategy informs the stakeholders and the investors of the peak position for going public or selling off their stake. It also helps them maximize their gains or minimize their losses, as they will always know the best time to remove themselves from the equation.

Designing an exit strategy for a small business can be tricky. It often starts with hiring a business consultant who shapes the idea of their business, which can evolve to include many possibilities. At this early stage, the owner understands their end game and establishes a plan of action. This will help them reach their goals much faster and pave the way for a successful exit strategy.

3. Determines the value of the business

An exit strategy determines the value of a business because it tells the investor how much they can earn from their investment. It also helps entrepreneurs know whether they should start a new venture or continue with their current one. For instance, a “Bubble strategy” is a possible exit strategy that a startup may implement to create a high-value but short-lived company. It’s a “valuation-based” exit strategy, used when the startup has no good ideas and the founders need cash fast.

4. Helps make the right decisions.

An exit strategy helps entrepreneurs make the right decisions and take steps to help them achieve their goals.

The exit strategy includes several key components, such as:

  • What are the goals for exiting?
  • What are the options for exiting that can be pursued?
  • How much time does it take to execute each option?
  • What is the probability of success with each option?
  • What is the potential outcome if all options fail?

5. Gets you a better deal when exiting

When you’re ready to sell your company, it’s critical to have a plan in place. If you don’t, you could sell your business for far less than it’s worth. You need to determine the ultimate goal for the sale and how much time you want to spend searching for a buyer.

Many people who own small businesses often don’t have a plan for when they’re ready to sell. This leaves them uneasy and prevents them from feeling in control. To make the transition as smooth as possible, you must plan what you need to do and whom to meet.