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duminică, 8 aprilie 2012

The Way to Document Your "Exit Strategy"

The Way to Document Your "Exit Strategy"

by Christine Richardson

Is there something that all investors have in common? You could say they are mainly motivated by your exit strategy. They means they want to know how they can "cash out" on the investment they make in your company. They need to know your strategy for going from Point A to Point B.

You may not know the answer right now - and after all, the future is hard to predict. But any savvy investor will want to make sure that your goals are aligned, and that you are both looking forward to a "liquidity event," where you will both reap significant rewards.

When devising an exit strategy, it would always be a wise idea to look over similar firms which have achieved successful liquidity events either through mergers, IPOs (Initial Public Offerings), acquisitions, and the like. Be sure that you take the time out to describe these companies in your business plan. You need to clearly show how these companies have achieved success and then point out the main reasons for the success. Have they become successful thanks to a solid marketing strategy? Or was a technological advantage the reason behind their achievements? No matter what the reasons may be, you should make note of them in your business plan.

You should also take note of the value of comparable firms, at the time of the liquidity event. And also, try to understand and explain the drivers of that valuation. Was it related to the earnings of the firm, or the number of customers the company had acquired? You should then use these numbers as a benchmark in planning your own exit strategy.

Furthermore, if you're aiming for an acquisition, then you should list the firms that may be a good fit to acquire your company, and state the reasons why. Similarly, if you're aiming for an IPO, then you should document the milestones for achieving this exit.

IPOs and acquisitions would be among the most common exit strategies presented in a business plan. Yet, IPO have become a lot less common over the past few years. Of course, you are not able to predict what is going to occur in the future. The vast majority of reasonable investors will not demand a highly detailed exit strategy. However, they will want to be sure an exit strategy is among your plans. Investors do want to know that you have committed to grow the company over the long term.

The vast majority of the time, investors will only opt to cash out on the investments when the company finally arrives at an exit strategy either via IPO or an acquisition. It is quite important you document an exit strategy properly in a business plan. Yet, your exit strategy is only one of several sections you must get right if you are seeking to acquire funding.

Finally, always look for shortcuts. For example, if you're <a href="http://www.growthink.com/businessplan/help-center/how-to-start-a-non-profit-organization">starting a nonprofit</a>, use this <a href="http://www.growthink.com/businessplan/help-center/non-profit-business-plans">nonprofit business plan</a>.

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