Three Exit Plans for Solopreneurs

Posted by in Finance for Start-Ups, General Finance, Risk Management | 11 comments

If you haven’t thought about leaving your business, you should do so, because it affects today’s decision making. Your plan for leaving your business is known as an Exit Plan, and yes, even Solopreneurs have them. It’s helpful to know what your plan is because you need to optimize your activities toward your goal.

Before we get into the three exit strategies, realize that many traditional business exit plans–i.e. IPOs, mergers, acquisition, etc.–are off the table for Solopreneurs, leaving you only with three viable options.

The Three Little Pig Houses (Exit Plans) For Solopreneurs

Think of Solopreneur Exit Plans as a play off of The Three Little Pigs and their homes.

The first pig builds a straw house because his business is temporary and he will never have the opportunity to sell it.

The second pig builds a stick house because he’ll be able to use the sticks later to rebuild his house in a different place

The third pig builds a brick house because he is going to build his Solo business into an agency or firm which he plans to sell.

Straw House: Payout today

If you knew your house was going to be blown down, you would move everything out of it. The same thinking applies if you know one day you’ll shut down your business without any compensation for it. You need to manage your business not for the future payout but for the payout today. This is the majority of Solopreneurs’ Exit Plan.

A traditional small business hoping to sell (or IPO) in the near future will reinvest back into a company to increase cash flow, but as a Solopreneur with a premonition of your house blowing over, you’ll want to steer your cash away from asset-building to long term security via an owner’s draw. How it affects your decision making:

You’ll pull extra money out and contribute to a 401K rather than put back into the business

In the back of many Solopreneur’s heads lay a thought that they might be able to sell their company as is. But to who? This is a tough one for knowledge-based Solopreneurs, because your company and personal identity is as intermixed as the chocolate and peanut butter in a peanut butter cup whereby you can’t just extradite your personality (coach) or your skill set (freelancer) from your brand.

Stick House: Diverging

Maybe you’ve done freelance web design and sees more opportunity in web consulting. Or you’re a restaurant accounting consultant (setting up and managing bookkeeping systems), who sees more lucrative/enjoyable opportunities in restaurant turn-around or restaurant brokering. This exit plan shows that you’re not out of business entirely, but simply out of the current mold. If you’re currently in an ultra-competitive industry, accumulating in-depth experience and a deep contact list, but struggle with poor economics, this might be a good opportunity. If this is the case:

Keep your eyes open for new niches that you can leverage your contacts and skills

Brick House: Scale Up

While we’ve heard many stories of successful corporate suits down-sizing to become Solopreneurs, there are a fair amount of people who start as a Solopreneur out of resource constraints and scale up later. Growing your Solo business into a firm or agency isn’t a bad option if you don’t mind managing others. Then you can start looking at traditional business exit plans like selling your business to the highest buyer.

This exit plan works better in freelancing roles where hard skills are needed (i.e. graphic design) than softer roles (i.e. startup coaching). Many web designers start by themselves, hire part time work to full capacity, and then make the move to moving into the whole W2 employer thing. What you need to do:

Take less out of your company and invest into assets and people to give you economies of scale. Your financial reward is less about large owner draws and more about the sale in the future.

Final Thoughts

Which little piggy are you? Why?

Rob Place has been working as a trainer and coach to entrepreneurs since 2007. He works with clients in developing strategy, business plans and financial projections. His customer base is the startup or young Solopreneur (coaches, consultants, freelancers), armed with skills but unclear on how to build a business around them. He has a Yale MBA. Find Rob at www.solventurer.com on Facebook and on Twitter

11 Comments

  1. Thanks for posting Nicole!

  2. Having an exit plan or exit strategy is important even if you don’t consider yourself one of the little pigs!
    I was turned down from a lucrative grant and contest because I did not have in place a good exit strategy. In other words my house blew down even though I thought I was building it for the future.
    This topic was not something I thought about just starting up but lesson learned.

  3. Very interesting article. As you say, most startups don’t consider how they’re going to leave their business.
    You could say that an exit plan is the ultimate WIIFM (what’s in it for me).

  4. @Haralee, you’re right: business plan readers–be it investors or business plan judging panels look at Exit Plans. When I judge the Brooklyn and Queens business plan contests, we discuss where people are heading with the business. @Victoria, yeah, you’re right! “the ultimate WIFM” is an accurate way to describe exit plans. When I sit down with aspiring entrepreneurs, “how do you want to leave your business” is one of my first three questions!

  5. Love the analogy. I learned about having an exit strategy early on in becoming an entrepreneur but I have failed to implement everything I learned, so far. I have to say I am the second piggy. There is a lot of competition in my industry so I am finding my niche.

  6. this is something that I am struggling with lately! I am not sure — some days, I think that I want to have a straw house and some days, a brick house. I never seem to want a stick house, so I just need to really make a list or something :)
    Nicole – thanks for sharing the great guest post, Rachel

  7. Thanks again to Rob for this guest post. I too realized I needed to take a look at my exit plan. While its far in the future, Rob’s insights drove home the need to begin planning now.

  8. I think I must be the second little piggy and I have to say I’d rather be the third. It really must be time to think about my exit strategy if I’m not sure which piggy I’ll be in three years. Great post! Definite food for thought :-)

  9. This is something my husband and I are working on. We’ve got a couple of subcontractors now and are looking for a couple of more to round out the job skills. At this point in my career, I’m ready to spend more time managing people and projects than doing the actual work. And I’d like to spend more time writing, networking, and general marketing to promote our business. Also, I’m going to spend more time promoting my consulting as well.

  10. Certainly food for thought. It is an important consideration that is sadly neglected by most of the internet marketings. It’s all about making money right now without regard to building it into a business with value.

    Sandy

  11. Rob, great info. I have always encouraged my clients to begin with the end in mind. I believe every solo business owner can structure their business to get some recurring revenues at the end of the day if their build a healthy database and documented systems. Thanks for the fab insight.

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