All investors greatly desire and are motivated by a clear vision of an exit strategy of the company, or the timing and method through which they can "cash in" on their investment. This image comes into focus best when the key valuation and liquidity drivers of the company are clearly defined. An excellent method to accomplish this is through descriptions of comparable firms that have successfully liquidity events, either through acquisition, merger, initial public offerings (IPO).
It is helpful to show other businesses in your market, or similar companies in other markets, who have successfully exited, and how and why these companies were successful. For example, they have been successful since they acquired a large customer base? Or were they successful because they have achieved rapid growth and high profit margins? It is also important to tie their success to their exit price. Exit price was based on earnings or the number of customers the company had at the time? The business plan should tie these parameters (for example, the price of leaving $ X per customer) to the company to determine its future price.
The most common exit strategies in business plans are IPOs or acquisitions. Although the output method is not always essential, often the investor wants to see the decision to better understand the management team's motivation and commitment to building long-term value. If the acquisition is the way out selected, and then the business plan should detail the potential of companies that might want to acquire the company in the future and why. Likewise, if an IPO is expected in the future, the business plan should document the financial parameters of the company that make it ripe for this type of exit.
In most cases, investors only make money when the company reaches a successful exit event. As such, it is critical that business plans should explain exit, detail why this exit was chosen and validate a realistic exit price.
It is helpful to show other businesses in your market, or similar companies in other markets, who have successfully exited, and how and why these companies were successful. For example, they have been successful since they acquired a large customer base? Or were they successful because they have achieved rapid growth and high profit margins? It is also important to tie their success to their exit price. Exit price was based on earnings or the number of customers the company had at the time? The business plan should tie these parameters (for example, the price of leaving $ X per customer) to the company to determine its future price.
The most common exit strategies in business plans are IPOs or acquisitions. Although the output method is not always essential, often the investor wants to see the decision to better understand the management team's motivation and commitment to building long-term value. If the acquisition is the way out selected, and then the business plan should detail the potential of companies that might want to acquire the company in the future and why. Likewise, if an IPO is expected in the future, the business plan should document the financial parameters of the company that make it ripe for this type of exit.
In most cases, investors only make money when the company reaches a successful exit event. As such, it is critical that business plans should explain exit, detail why this exit was chosen and validate a realistic exit price.