In our post entitled 4 Reasons Why Your Business Plan Writer Needs to Include Exit Strategies, we discussed why investors like to see exit strategies in business plans. This week, we’re getting more granular and looking at why having your business plan writer include buyout options as part of the exit strategies in your plan earns you another green checkmark from investors and can provide you with some entrepreneurial benefits.
1. It demonstrates confidence
Demonstrating self-confidence to investors is very important. A solid business plan presented by someone who is a little too timid or meek is likely to be turned down by most venture capitalists. As Wharton Business School professor G. Richard Shell puts it, entrepreneurs need the right kind of confidence. “If an entrepreneurship student is using his or her MBA as a ‘hedge’ against failing at a startup, that tells me they lack the genuine growth mindset,” Shell explains. “On the other hand, if they are in the program to learn as much as they can – but would drop out of school to exploit an once-in-a-lifetime business model opportunity, then I am ready to get out my checkbook and invest in them.”
Including buyout options in your business plan shows investors the right kind of confidence. It demonstrates to investors that you believe your business will succeed, it will attract interest from buyers, and when the timing is right, you’re willing to part from your business with your head held high and move on to the next venture.
2. Outstanding debt is also bought out
In most buyout deals, not only are the assets and equity of a company acquired by a third party, but the debt is as well. Your business’s obligations are transferred to the buyer and labeled “assumed debt” in his or her books. Meanwhile, a bit of weight has been taken off your shoulders and you have more freedom to move on to the next stage of your career.
3. It generates ROI
One of the most obvious reasons to have your business plan writer include a buyout option in your document is because it provides a return on investment (ROI) to those who opted to fund your business in exchange for equity. Investors need to be convinced that a generous ROI in a medium span of time is possible. “For an early-stage, high-tech investment, you had better be able to convince the investor that there is a realistic plan for returning five times to ten times his money in three to five years,” says Guy Kawasaki, CEO of Garage Technology Ventures. And with buyouts generally having a steep premium incorporated in the price tag, including it in your business plan might just do the trick.
4. Live the entrepreneur life
Of the 960 self-made billionaires in the world, only 130 made money from one business. The other 830 made their fortune from multiple ventures. Mark Cuban’s Broadcast.com was acquired by Yahoo, Richard Branson sold Virgin Records to EMI, and the shares of PayPal co-founder Elon Musk were bought by eBay. Each went on to found more big name companies – 2929 Entertainment, Virgin Airlines, and SpaceX, respectively.
Of course, the chances you’ll become a billionaire are pretty slim. But being an entrepreneur is all about starting ventures, undertaking new projects, and always being on the lookout for opportunities. Being open to a buyout makes that easier, so be sure that your business plan writer includes it in your plan.