Business Basics

In order to attract investment capital for your business, it's critical to supply an exit plan to investors so they can get their money back (hopefully with a healthy return) and exit your company. The exit strategy section of your business should also outline your long-term plans for your business.

Begin by asking yourself why you are getting into business. Do you see yourself running your company twenty years from now, or are you interested in moving on after a few years? Are you in it for the big money at the end of the rainbow, or are you more interested in running a solid and steadily growing business?

It's important to think through these issues and decide what you intend to do with your business before you can adequately answer the questions, and address the issues, concerning how your investor will exit your company. The requirements of each investor will vary in terms of return and exit strategy they seek. Two examples follow:

Venture Capital - These investors look for a high return and an exit strategy of approximately 3-7 years. They work almost exclusively with companies that may go public or can be sold for a significant profit. However, keep in mind that going public is very rare and is unattainable for most companies.

Angel Investor - These investors typically are looking for a high return but are more flexible with the terms of the exit strategy. Angels are typically less sophisticated than venture capitalists or institutional investors, and will become involved in your business because of a personal relationship with you.

Here are some possible exit strategies to consider:

>> Initial Public Offering (rarely realistic from investor's standpoint)
>> Merger/Acquisition
>> Buyout by partner in business
>> Franchise your business

Common Mistakes to Avoid

The following are several common mistakes found in the exit strategy section:

>> Assuming you have a business with the potential to go public.
>> Failing to explain how your investor will specifically recoup their investment and a sufficient return.
>> Failing to take your personal goals into account when planning your exit strategy.
>> Completely ignoring this section in your business plan or having no exit strategy at all.