Many Colorado entrepreneurs think of exit strategies as being merely paragraphs that make up obscure sections of their original business plans. As such, exit strategies are often forgotten even though they should be treated as legal concerns with growing a business. One of the reasons why exit strategies become nothing more than an afterthought is that they are seldom formalized. Instead, they are often included in business plans as boilerplate for prospective investors and lenders to review.
Exit strategies should be given careful and realistic consideration. Sole proprietors will have an easier time formulating an exit strategy; however, this may not be the case with when people decide to form more complex structures such as a limited liability company or a sub-S corporation. From a managerial point of view, there are three main exit strategies: autopilot, investment and option to sell.
The autopilot strategy mostly consists of the owner agreeing to step away from company operations and letting management run the business. The option to sell is a quick exit strategy that lenders often like to see in business plans because it presents them with an avenue to mitigate their losses in case of commercial loan default.
It is important to think about the legal aspects and potential issues that may arise as a result of applying exit strategies. Consulting with a business law attorney who has experience with these types of matters is highly recommended when it comes to formulating an exit strategy, particularly when there are multiple parties involved in the ownership and management of the venture.
Source: The Good Men Project, “Why You Should Give Your New Business an Exit Strategy,” Kevin J. Donaldson, Aug. 17, 2017