Documenting the Exit Strategy in Your Business Plan
by Growthink Business Plans
Published on this site: April 6th, 2005 - See
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All investors greatly desire and are motivated by a clear picture
of a company’s exit strategy, or the timing and method through
which they can “cash in” on their investment. This picture
best comes into focus when the key valuation and liquidity drivers
of the company are clearly delineated. An excellent method to accomplish
this is through descriptions of comparable firms that have had successful
liquidity events, either through acquisition, merger, of initial
public offerings (IPOs).
It is helpful to show other companies in your market, or similar
companies in other markets, who have successfully exited, and how
and why these companies were successful. For instance, were they
successful since they acquired a large customer base? Or were they
successful since they accomplished fast growth or high profit margins?
It is also important to tie their success to their exit price. Was
the exit price based on earnings or the number of customers the
firm had at the time? The business plan should tie these metrics
(e.g., exit price of $X per customer) to the business to determine
its future price.
The most common exit strategies in business plans are IPOs
or acquisitions. While the method of exit is not always crucial,
the investor often wants to see the decision to better understand
the management team’s motivation and commitment to building
long-term value. If acquisition is the selected exit path,
then the business plan should detail potential companies that
might want to acquire the firm in the future and why. Likewise,
if an IPO is expected in the future, the business plan should
document the financial metrics of the company that make it
ripe for this type of exit.
In most cases, investors only make money when the business reaches
a successful exit event. As such, it is critical that business plans
explain the expected exit, detail why this exit was chosen and validate
a realistic exit price.
http://www.growthink.com">Growthink
Business Plans</a> has developed over 200 business plans for
clients have collectively raised over $750 million in financing,
launched numerous new product and service lines and gained competitive
advantage and market share. For more information go to: http://www.growthink.com
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