3 Consequences of Running A Business With No Exit Strategy

You should plan for your exit strategy because sooner or later, you will have to exit, whether you’re ready or not.

Every business owner will exit their venture at some point, and the truth is that most of these transitions are unplanned. Changes in the business, your clientele, your health, or personal life may force your hand. But unplanned isn’t the same thing as unprepared.

Regardless of your circumstances, a well-crafted exit strategy can mean the difference between an orderly transition with minimal disruption and a crashing halt that can impact the lives of everyone involved with your business. Here are the most common risks I see from people who neglect to plan an exit strategy.

Needless Lifestyle Impact and Disruption

The most obvious consequence of a lack of a plan is the money you leave on the table. While your business is active and ongoing, it fuels your livelihood and those of your employees. It can still do that after you leave, but only if you plan ahead.

A job that can’t survive without you has a continuity of business problem. If you’re the only one with access to mission-critical, proprietary resources and you have never articulated your vision to your key staff beyond their day-to-day work, it will be difficult, if not impossible, for them to pick up the pieces.

Even if you do manage to sketch out a hasty exit plan in response to an unforeseen change, you will reap the consequences of missed opportunities. What tax advantages could you have realized over time by structuring your business as an S-Corp instead of a C-Corp? Without a plan, you could sell a thriving business valued at $20 million and end up with only $9 million. If your post-exit lifestyle depended on a larger sum, you will need to make compromises you could have avoided otherwise.

Missed Opportunities

People don’t want to work with businesses without plans. A potential acquirer or successor will want to see that your company has operational readiness and sustainability. Those traits tie directly to an exit strategy.

A lack of preparation can lead to missed opportunities for lucrative deals that could have maximized the business's value when the time comes for an exit. Deal partners will ask you dozens of questions about your business. Put yourself in their shoes. Would you be impressed if you only received two or three satisfactory answers?

Without a plan more sophisticated than a series of handshake deals, you miss opportunities that could play to your business's current market position or inherent strengths, resulting in suboptimal sale conditions or partnerships.

Shakier Foundations For Success

Legal and structural readiness also plays a crucial role. A common pitfall for many businesses is the absence of updated legal agreements, such as partnership arrangements and non-compete clauses for key employees. These oversights can lead to internal conflicts or legal challenges that tarnish the business’s reputation and complicate the exit process.

For example, what would you do if all of your key employees left tomorrow? Do you know what their career plans are? Have you talked to them about their future in your company? You need to give them compelling reasons to stick with you. A non-compete agreement may not be enough, regardless of what happens to the FTC’s ban on them. If they leave for competitors or start competing businesses themselves, the value of your own business at risk.

No one expects you to predict every turn in the road, but preparing for the journey with the right strategies and the right people can make all the difference. Whether you're contemplating an imminent exit or just starting to think about your future steps, now is the time to assess, plan, and act.