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  • February_Investments

    Planning the Exit Strategy Before Starting Your Business in 2014

    By Crystal Gifford, Full-Time Faculty, Kaplan University School of Business 
    Published February 2014

     

     

    Every year new businesses are started in the U.S. A growing trend is in the start of businesses among those of the traditional retirement age (Matthews, 2014). In fact, SBA.gov reports that entrepreneurship is the heart of America and recent White house efforts called “Start Up America” have been implemented in order to encourage entrepreneurship for the very reason that more jobs are created with small businesses than any other type of employment.  Programs such as these enable more aspiring entrepreneurs to get support building their dreams (SBA.gov).  At the same time, more than 25 percent of these start-up businesses fail in the first year and 50 percent within 3 years, with only 35 percent making it to 10 years (Dickie, 2014).

    One of the biggest assets of a business, the entrepreneurial passion, can also be its biggest downfall.  Often, businesses are started based on a life journey of the entrepreneur who then ties into the business his or her personal passion, identity, and even livelihood.  Yet when these businesses fail, they often take with them the life savings of those who had the dream that was so real they funded it with all they had.  Proper management of wealth would encourage one to protect savings and invest in “safe” investments with good returns, but how can an aspiring entrepreneur balance the need for safe returns with the desire to build something bigger that makes the impact on the world they desire to make? 

    One of the most critical elements in planning for success in business, especially a business in which an entrepreneur is going to involve his or her life savings, is to begin with the end in mind.  When planning a business, it is critical to plan where the business is going, and just like traditional financial planning, there must be a structure and plan in place that allows the business owner to eventually be free of the operations and move into a phase known as retirement.  For the purpose of this paper, “retirement” is a state of leaving the process of work and continuing to have financial prosperity irrespective of activity in the business, age, or number of years served. 

    Experts such as Peters (2009) share the importance of and strategies for creating effective exit plans for entrepreneurs.  When creating a business, is it important to consider the overall purpose of the business.  While passion has its place in creation of a business, without proper profitability, cash flow, and strategic planning, the passion will quickly fizzle as the bills pour in with no working capital to pay them. Keeping a dream alive requires a clear plan for funding that dream. 

    With the frequent failures due to cash flow issues in business, it would behoove the aspiring entrepreneur to know precisely where he or she wants to go with the business long before the first dollar is spent.  Protection of long-term wealth, including that of well-being, happiness level, and lifestyle desires, should be an integral part of the business planning process.  While entrepreneurs should not expect to earn personal income from their businesses for the first 3 to 5 years, they should be planning how they will eventually receive financial gain from their efforts.  Also it is important to consider the cash flow needs of the entrepreneur while the business grows in the first 3 to 5 years.  Additionally, it is necessary to know if the business will require any of the entrepreneur’s personal resources during this period. This will allow the new business owner to avoid surprises that are devastating to themselves personally or to the business vision.

    When planning a business, dream, vision, and goals are a vital part of this plan. However, an exit strategy must also be present so the entrepreneur can eventually reach a state of longevity from the business when he or she no longer desires or is no longer able to continue being actively involved in the business. Seeking the proper counsel and experts to help with the overall planning could eliminate the common mistake of investing with passion and losing one’s life savings to a dream that becomes a nightmare.  At the end of the day, a business is meant to create profits, and this is part of keeping the dream alive. 

     

    References

    Dickie, Robert.  (2014)  “The Start Up Environment Is My Favorite Place to Make a Living—here’s How to Succeed In It”.  FoxNews.com.  Retrieved 01/08/2014 from http://www.foxnews.com/opinion/2014/01/02/start-your-own-business-follow-your-dream-in-2014/

    Matthews, Steve (2014).  Many Are Shunning Retirement for Start Ups.  Retrieved 01/08/2014 from http://www.sba.gov/about-sba/sba_initiatives/startup_america/about_startup_america

    Peters, Basil. (2009)  “Early Exits:  Exit Strategies for Entrepreneurs and Angel Investors (but     Maybe Not Venture Capitalists”.  MeteorBytes Data Management Corp.  ISBN 0981185517

    Start Up America:  Empowering America’s Entrepreneurs.  Retrieved 01/08/2014 from:  http://www.sba.gov/about-sba/sba_initiatives/startup_america/about_startup_america

     

    Crystal Gifford is a full-time faculty member at Kaplan University. The views expressed in this article are solely those of the author and do not represent the view of Kaplan University.

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