We’re here to talk exit strategy for startups! Every entrepreneur should have an exit plan on their radar. However, many business owners don’t think about creating an exit plan until they’re preparing to leave.
This is not ideal because a good exit strategy helps you maximize the value of your company ahead of a sale. By starting your planning well in advance, you can help ensure your company is desirable, even without you, while also creating a clear path to attaining the financial freedom you’ll need post-exit.
But first, let’s dive into…
What is an exit strategy in business?
Let’s start out with the definition of exit strategy: it’s a plan to either end a business, or better yet, progress it to meeting long-term goals. Long-term goals of a business exit strategy might include reaching financial sustainability, introducing new leadership, or re-thinking the business’ direction.
Long story short – if you’re an entrepreneur, and you’re sitting here asking, “what is an exit strategy in business?” – it’s a necessary plan to protect your financial future. Why is that? In order to develop an exit strategy, you have to conduct a pretty in-depth financial analysis. That way, you know how high your business should be valued.
The funny thing about a business exit strategy, though, is it needs to be in place before you exit. Not during your exit. Not after your exit. Before you exit.
Your exit strategy plays a key role in determining the strategic direction for your company. Will you sell and move on, have an earn out period, or become an employee of the company after the sale? By not proactively planning an exit strategy, you and your heirs or successors may find that future options are limited.
That’s why at Acuity, our ecommerce practice helps our clients in two big ways.
The first is management accounting. This is essential for knowing where things stand on a daily, weekly, and/or monthly basis.
The second is setting them up to have a great business exit strategy by providing them with high level guidance, and introducing them to brokers, and providing them with financial reports to share with a broker/buyer.
Exit strategy for startups in ecommerce
Ecommerce businesses are valued based on either: a multiple of Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) or Seller Discretionary Earnings (SDE), where businesses are valued on a multiple of the annual revenue.
It’s a given that as a business owner, you know that your money is too hard-earned to leave any of it behind. But in the ecommerce realm, it’s painfully common for business owners to try to sell their startup without an exit strategy.
And you already know what that means…you’re selling yourself short. Kind of ironic as a seller, huh?
So, it’s not a secret at this point that ecommerce sellers need to know what their plan is in an exit. We recommend creating a plan, not only for your exit, but for how you will spend and save funds. Take a vacation, invest in another business, invest in your retirement.
Another thing to consider is your mental health. Many ecommerce sellers talk with a therapist when selling their business. A lot of times, it either feels like your newborn baby or a piece of your identity, and talking with a professional helps to manage the transition.
For more insight into exit strategy for startups in ecommerce, check out the clip below from our recent ecommerce panel discussion. Tune in for:
3 exit strategies you need to be executing to get the most return and largest multiple on your ecommerce startup:
- You need to practice practice accrual-based accounting
- You need a unique product
- You need a solid marketing campaign and social following
Insights and tips into exit strategy for startups from ecommerce entrepreneurs who have experience with exiting a business:
- More people are signing up for A2X for good data and good accounting practices to prepare for an exit.
- You need a buyer who wants to purchase your business.
- You need to be prepared for an interested purchaser to approach you, with quality data and accounting.
More Resources: Exit Strategy For Startups
Check out The EXITpreneur’s Playbook by Joe Valley for more exit strategies on how to successfully sell your ecommerce startup for the most return.
Need help building your ecommerce startup exit strategies?
We’re always ready to help! Learn more about our ecommerce practice on our website.
Like what you see? Book a call with our team to get started today.