Considering your exit strategy may seem strange when setting up your new business. However, it’s worth considering that, as with most things, if there is a beginning, there’s most definitely an end! Just because you have planned and invested in your new business, it doesn’t necessarily follow that you will run it forever.

Why Consider an Exit Strategy Early On

There are many reasons for an exit strategy. Quite often, having had a taste of entrepreneurship, you develop a taste for developing new ideas and new businesses and certainly for many, the fun is in developing a concept and getting a business up and running. Selling your business can be a way to fund a new enterprise; or. of course, you might want to retire one day.

Giving thought and consideration to your endpoint with the business, not only provides a focus with tangible goals, but also protects the value of the business you have created, demonstrating that you have a definite plan for the organisation’s future.

Attracting Investors with a Clear Exit Plan

Having an exit strategy that includes aims, objectives and targets, makes your company more attractive to investors since they are more likely to be interested in a business that has a ‘roadmap’ in place. Creating a smooth transition for your management team and any shareholders will additionally have an impact on the eventual, estimated value of the business.

WhatsApp, a cross-platform messaging and Voice over IP service, is a prime example of a business that had a clear exit strategy that attracted a massive investment. The founders of WhatsApp were focused on creating a powerful communication tool, but they were also savvy in understanding the potential for acquisition. By maintaining a lean operation with a focus on user growth and engagement, they made WhatsApp an attractive target for larger companies looking to expand their portfolio.

In 2014, Facebook acquired WhatsApp for a staggering $19 billion. This acquisition was a strategic move for Facebook to dominate the messaging market and prevent competition. WhatsApp's clear user acquisition strategy and its potential for monetisation through its vast user base made it an irresistible investment for Facebook. The founders' exit strategy was executed flawlessly, resulting in one of the largest tech acquisitions in history.

Minimising Tax Impact and Protecting Your Legacy

Reducing or deferring the potential tax impact on your estate, spouse and family is of particular importance if you are setting up a new business later in life. When the founders of WhatsApp, decided to sell their business to Facebook in 2014 for approximately $19 billion, they were faced with a significant tax impact. To minimise this, they structured the deal to include both cash and Facebook shares. By receiving shares, the founders benefitted from the long-term capital gains tax rate, which is typically lower than the rate for ordinary income. This strategic move allowed them to retain more of their wealth from the sale. Entrepreneurs should consider similar strategies, such as selling their business in exchange for stocks or structuring the deal over time to spread out the tax burden.

Additionally, the WhatsApp founders set up their company in a way that allowed them to take advantage of tax deductions and credits throughout their business' growth. By carefully planning their business structure and sale, they effectively reduced their tax liability. Business owners should consult with tax professionals to explore all available avenues for tax minimisation when planning their exit strategy.

Key Considerations for Your Exit Strategy

How you develop an exit strategy varies from business to business, but essentially, these are the things that you need to think about:

• Timeline to eventual sale. This ideally needs to include details of how you would like to sell and who the ideal purchaser would be. You also need to give due consideration to how long you would anticipate the sale/deal to take.
• When you plan to leave the business. This creates a focus - in terms of what you want to achieve for the business regarding business goals, whilst the business is in your custodianship.
• The projected valuation. – Details of what the business is worth, with its current client base (good will) and its potential going forwards – after your departure.
• What’s next for you and what you intend to do. – You don’t have to give too much away. However, investors feel more confident if they have an idea of your next move; more specifically, they will be particularly interested that you’re not simply going to sell and set up a rival brand!

Regular Review and Alignment with Goals

Ideally, you need to review your strategy regularly, just as you would your business and marketing plan, to ensure it’s still aligned with your long-term goals and objectives.

Whole Foods Market's acquisition by Amazon in 2017 for $13.7 billion showcases the importance of regular review and realignment. Whole Foods had established itself as a leader in organic and natural foods but faced increasing competition and market pressure. The company's leadership regularly reviewed its market position and financial performance, recognising the need to partner with a tech-savvy powerhouse to continue thriving in a rapidly changing retail landscape.

By aligning with Amazon, Whole Foods was able to leverage Amazon's technological and logistical expertise to improve customer experience and operational efficiency. The acquisition allowed Whole Foods to continue pursuing its mission of offering high-quality organic products while also providing Amazon with a strong foothold in the grocery sector. The regular strategic reviews by Whole Foods' leadership facilitated a smooth transition and integration with Amazon's broader ecosystem.

In conclusion, your exit strategy is not just a safety net; it's a declaration of your business acumen. At Venture Planner, we challenge you to think beyond the day-to-day operations and envision the end from the beginning. How will your exit strategy empower the next generation of leaders within your company? What legacy do you aim to leave, and how will your exit cement that legacy? We invite you to join the conversation and share your insights on crafting an exit that honours your hard work and vision. Your story could inspire fellow entrepreneurs to approach their exits with the same creativity and foresight they apply to every other aspect of their business.