6 Reasons Every Entrepreneur Needs an Exit Plan [SaaS Founder Guide]

If you’re an entrepreneur whose business or side hustle is generating profit, the last thing on your to-do list might be making a plan to sell that business. However, none of us can predict the future, and there are a variety of reasons people wind up selling their companies before they thought they would.

So while growth, hiring, or bringing on a partner is probably way higher on your list of entrepreneurial concerns, coming up with an exit strategy now can have big benefits later. A strategic exit plan allows for better outcomes (aka a dream exit) and can make the process much less stressful since you’ll know what you need to do if and when you decide to sell.

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Need more convincing? Here are 6 of the top reasons we see business Founders sell before they thought they would.

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1. Major Life Events

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As the years go by, your life will inevitably change. Getting married, having kids, or caring for aging parents are just a few examples of things that might alter your ability or desire to continue running your business.

This is especially true for solo Founders. Without a partner to step in and shoulder some of the workload, there’s not anyone who can make the business a priority when you’re not available. Selling before profits decline may suddenly become an appealing option if your other choice is to close up shop. Or life changes may mean you just hit a point where it makes sense to take some of the risk out of the equation. Check out our interview with Mailparser and Docparser Founder, Moritz Dausinger for more on why he decided to sell one of his businesses in 2016, and then the other in 2018.

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Applying this to your exit plan:

• Get an understanding of how long your business can run autonomously before there are issues. Is it a day? A week? A month? Some businesses may not take much maintenance, while others may require constant attention.
• The length of time you can let it go is probably different depending on the type of work, so you’ll need to make a list of which tasks are critical. For example, you may be able to get away without doing your accounting for a month, where going a few days without shipping or customer service would put you out of business.
• If possible, come up with a plan to backup your critical functions. Find out if there’s a service or person you could hire temporarily. If you can afford it, test things out on a short vacation so you can understand pricing, as well as any pros and cons.
• Understand how to value your business early on so you know what to expect, and how to recognize a situation that could impact your valuation.

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2. Burnout

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It happens to the best of us. You work 60+ hours a week for years, too busy to optimize or hire help, and you hit a point where you simply can't go on. Burnout is nothing to be ashamed of.

Even though research suggests that entrepreneurs are better protected from burnout than their salaried peers, it remains a reality for anyone working the long and demanding hours of a Founder. And unfortunately, curing burnout isn’t always as simple as taking a vacation, especially if you have no choice but to take work with you.

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Applying this to your exit plan:

• First, make sure that you’re spending your time effectively. Use a time log to track where your hours go, and make an honest assessment of which tasks are really moving your business forward.
• If you’ve already optimized your time management and you’re still slammed, decide on a reasonable Monthly Recurring Revenue (MRR) figure that will allow you to hire part- or full-time help. Many business Founders will tell you they waited too long to make their first hire.
• Take a look at which tasks are critical to your business, which ones you spend the most time on, and any you don’t feel especially passionate about. If a task is in all three of those categories, it’s a no-brainer to hire it out as soon as you hit that MRR goal.
• When you’re ready to hire, spend time writing up a job description that includes info about your company’s mission, how the position contributes to the success of the business, and be as specific as possible about skills and personality traits you’re looking for. Planning your first hire like this can also be a great motivator to hit your revenue goals.

If you’ve been in business for more than 5 years, are still working crazy hours, and aren’t close to the MRR numbers that would allow you to hire someone to help you, it might be time to think about whether you fall into the next category.

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3. Hitting a Limit on Expertise

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As a business grows, it’s natural to find that the skill set needed to make it successful evolves, too. A common example of this is when SaaS entrepreneurs run into scaling and performance challenges that fall outside their area of expertise.

Applying this to your exit plan:

• This can be a tricky one, and it requires a good deal of self awareness. Start by taking an inventory of what you’re best at, and what you love to do.
• Next, write down the skills needed at your business to maximize growth.
• If the two lists don’t overlap, you’ve probably hit an expertise limit, and it’s a good time to consider your options. In some cases, you might be able to bring in a partner, or simply hire for the skills you need. In other cases, selling may make more sense.

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4. Co-Founder Disagreement

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Whether it’s a disagreement over equity share, strategy, or the future of the company, co-founder disagreements happen. You can avoid some of the common causes of conflict by signing an agreement with a vesting schedule prior to starting a venture, outlining everyone's roles and responsibilities at the outset, and deciding ahead of time what happens to equity split when goals aren't met or work load shifts.

Co-founder buy out is always an option, in theory, but depending on your business’s size and your finances, it may not be practical or feasible for one of you to buy the other’s share. If things get so bad that they’re affecting business performance, selling might make more sense than toughing it out.

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Applying this to your exit plan:

• If you’re considering a partnership, start by making sure that you and your potential partner have some common ground, because business always has a way of getting personal.
• Do as much pre-planning for as many scenarios as you can before formalizing any business agreement. A handshake deal might seem appealing for its simplicity, but talking about possible areas of disagreement when a relationship is in a good place makes it much easier to navigate conflict later down the road.
• Put something in writing. Especially when it involves money. It’s well worth the cost to hire a lawyer and draw up the appropriate documentation. If you hit it big, you want to celebrate with your partner, not spend your time haggling over shares, vesting, and equity.
• If you’re experiencing conflict with a co-founder, never avoid it in hopes it will go away. Find the time and resolve to work through your issues productively. If things are really bad, consider hiring an executive coach to facilitate a conversation and help you develop a framework for resolving issues.

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5. Pursuit of Another Project

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Once an entrepreneur, always an entrepreneur. If you’re like most Founders, you have a running list of projects you’d like to start, and there’s no shame in preferring one part of the process over another. Being a successful entrepreneur might mean wearing a suit every day and managing a team of 100+ employees to some, but for many of the SaaS Founders we’ve spoken with, that sounds more like a worst-case scenario. Selling a business allows them to get back to the part of entrepreneurship they’re truly passionate about – bringing new ideas to life with a small team or as a solo Founder.

In fact, we’ve had multiple Founders sell to SureSwift for this exact reason, including the Founders of MeetEdgar and ChargeStripe. The Founders got their company to a certain place, and then their interests shifted and they wanted to put time and energy into a new project. ‍Selling to SureSwift gave them the freedom to pursue those projects, while knowing their established business, customers, and teams were in good hands.

Applying this to your exit plan:

• Starting a business doesn’t need to be a lifetime commitment, and for the vast majority of Founders it won’t be. Go ahead and keep a list of other projects you’d like to start, and take some time to reflect on your personal goals for your current company.
• As you work on your business, keep tabs on which stages spark your passion. Do you love bootstrapping an idea and getting it off the ground, do you get a kick out of making that first hire and knowing the business is bigger than just you, or do you dream of managing a big team across many locations?
• If your business outgrows the stage you like best, or you just feel boredom setting in, it might be time to sell it to someone who has the skills and passion to take it to the next step so you can move on to something else.

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6. Strategic Buyout

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This last reason isn’t necessarily unplanned like the others on our list. But since a buyout by a bigger competitor is what a lot of Founders dream of when they start a business, we thought we’d address it here.

Buyouts by bigger competitors aren’t as common as you’d imagine. This is because the cost and complexity of acquiring a business with the same knowledge, services, or skills doesn’t usually pencil out compared to organic growth. Acquisition offers are more likely to come from businesses that offer an adjacent or complementary service or product, or private equity companies, like SureSwift, with a business model that’s based on acquiring businesses in a specific sector.

Applying this to your exit plan:

• Keep meticulous financial records of your cash flow, profits, losses, annual growth, and MRR. If an acquisition opportunity comes up, you’ll be well prepared.
• Network with Founders of companies who offer a complimentary or adjacent product or service, and look for opportunities to co-promote your offerings. Even if they never make you an offer, both of your bottom lines may benefit.
• Do some research on whether there are any companies that acquire businesses like yours. For example, at SureSwift, we focus on online businesses, and we acquire SaaS companies, subscription-based services, as well as the occasional content-based website.
• Depending on your industry, there may be private equity firms that specialize in it. Find out who they are, what they look for in an acquisition, and reach out when you’re generating profit and considering a sale in the next one to two years.
• If you’re serious about selling, and the above notes aren’t options for you, consider talking to a business broker.

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What Questions Should Founders Ask Before Exiting their SaaS?

Whatever your present circumstances, make sure your business is ready for change. Because whether it arrives tomorrow, or 5 years from now, you can be sure of one thing — it will arrive.

Hopefully we’ve convinced you that even if you’re not considering selling your business today, it’s still wise to have an exit plan. If one of the situations we’ve outlined here applies to you, talking to other business owners, a broker, or a prospective buyer can also help you understand the sales process and address any concerns.