Why do I keep blathering on about the importance of planning an exit strategy? Good question.
Here’s an excerpt from my VERY SOON to be published book…
Chapter 6. Why an exit strategy?
‘Affairs are easier of entrance than of exit; and it is but common prudence to see our way out before we venture in.’
- Aesop.
I love that quote. Aesop might have been talking about business. It is easy enough to start a business but not so easy to finish it with style and wealth. By building an exit strategy into your business plan you give yourself a much better chance of success.
An exit strategy is the most overlooked element in business planning. I’ve researched many books about business planning and services available to small business owners. Few highlight the importance of an exit strategy.
As I explained earlier in this book, a study by business information experts Dun & Bradstreet estimated the failure rate for new businesses was 70% to 80% in the first year and only about half who survived the first year would remain in business the next five years.
I think the failure rate is horrifically high, when you consider the statistics represent someone’s dreams, their hopes for a business that was meant to bring them joy. For every one of these failures, someone has put their heart, soul, time and money into an idea that didn’t work.
Why would someone walk away from their business without it ever paying them back for all their energy and effort?
Reasons businesses ‘fail’
- The main reason seems to be that owners get into business for the wrong reason. They have expectations of the business providing freedom, giving them control and the lifestyle they desire. In the first few years, the typical business is a giant blood -sucking monster. It is! It sucks out your time, it pulls on your money, puts you under stress and if you’re not prepared, or in it for the right reasons, you will walk away.
- The second most common reason is poor planning. Businesses charge ahead without understanding the market, or testing their assumptions about their product before they launch. They don’t know how to price correctly. They fail to plan for the long haul as well as the short-term.
- The third failure factor is a lack of capital. I estimate that running out of cash accounts for most of the 30% of companies that fail before their second anniversary. Too few business owners realise that a business can be a money drain and they need sufficient capital to keep it going. If you don’t understand that and are not prepared it can easily take you under.
- Poor management is the fourth factor and is really a combination of the three main reasons for failure. All sorts of areas in management can go wrong. Even with the best ideas, products and services, a poorly managed business can quickly cause its own demise.
- Poor marketing is another cause. You can have everything else sorted but you need to know how to tell people about it, in the right way, in the right place and at the right time to get people to buy what you’re selling. If not, you will fail.
If you plan an exit strategy from the start and approach your business like a project, your chance of succeeding will significantly increase. The process of thinking about and planning your exit strategy will enable you to see your business as a long-term project with the achievement of a well-earned goal at the end. You’ll be amazed how time can fly. A business with no long-term goal can meander along, making a bit of money, keeping some clients happy, but taking its owners no closer to their life-long dream of being financially free to enjoy an old age free from worry.
Copyright 2012 by Laura Humphreys. All rights reserved. No part of this book may be reproduced, stored in a retrieval system or transmitted in any form or by any means, whether electronic, mechanical, photocopying, recording or otherwise, without prior written permission of the author.
12
From the desk of Liber8me.
I had a very enjoyable interview with John Holt (co-founder of HR Software provider Sonar6 which was sold to NASDAQ listed company Cornerstone On Demand) for my regular NZ Business Magazine column. He said many wise things.
I had a big shock last week on my way back from Tonga. Upon the recommendation of a client I called into see a dentist for a second opinion on my troublesome tooth. The dentist was Dr Loy at the Caring4smiles practice in Epsom. After one hour with him I had committed to spending the next two years and over $20,000 with him, travelling from Wellington to Auckland to do so. When all I had wanted was advice on one dodgy tooth.
