Pleasing an investor is never an easy task. To start, they need piles of research information, numerous helpful and accurate data displays, and pristinely executed data before they’ll even think about financing your business. Billionaire Warren Buffet, worth $58.5 billion today, explains that, “Risk comes from not knowing what you’re doing.” Financial lenders must know that you did the legwork in reaching your final business plan, which also involves creating exit strategies.
1. Show investors that you have a long-term view While some lenders are hoping to make some fast cash, most of them are looking for businesses that can steadily develop over a longer timeframe. To emphasize how you are keeping the long-term in mind, it’s important to also include exit strategies into your business plan that look past the first three years, or even before it. Since none of us can foresee the future, it’s possible you may be forced to implement your exit strategy before the three-year mark of operations. Regardless of the actual outcome, by being objective in your business’ vision you can show your long-term outlook on the situation.
2. Demonstrate to investors that you have a realistic outlook Depending on your outcome, you might enjoy a profitable exit if all your plans go well and your business goals our met, but you may also need to implement the exit strategy you defined if your business is under-performing.
Whether you want to hear it or not, 50-70% of small businesses fail within the first 18 months so it’s important to, while hoping for the best, prepare for the worst if business fails to gain substantial revenue. Including an exit strategy proves to investors that you have a realistic view of business in today’s modern times. Entrepreneurs today seem to have grown characteristically brash, but we urge you to swallow your pride and inherit a more humble attitude. As Don Moore, Associate Professor of Management in Berkeley's Haas School of Business at the University of California, states, "If entrepreneurs think they're better than others, they may be overly optimistic and start things with low chances of success.”
3. Mitigate your risk By taking the step of compiling a contingency plan in the form of an exit strategy shows lenders that you’ve assessed the risks and have even prepared for the very real possibility of things going south. Referring to the quote from Warren Buffet, effective planning minimizes the margin of error. If your exit strategy also motions for ways of deciding when it should happen, your business will be more appealing to financial lenders. This means that, by including an exit strategy in your plan, you’ll be preparing to exit before you absolutely have to. Meaning, by taking the proper steps for creating an exit strategy you could very well avoid having to file for bankruptcy or face other serious penalties or fines when things go wrong.
4. Planning for the worst can save you later A pre-defined exit strategy might by your saving grace to saving face when it comes to your prospective lenders if your business isn’t going the way you hoped and it continually misses even the minimum expectations. An honorable exit that includes meeting your obligations and making owed payments is nothing to be embarrassed about. "I've never heard [a millionaire entrepreneur] say they hit it right the first time out," states Steve Siebold, an experienced entrepreneur and consult from Palm Beach, Florida, "The bigger they are, the more they've typically failed."