A harvest strategy, more commonly called an exit strategy, is the way an entrepreneur or investor intends to extract his money from a business after it has become successful. This section of a business plan details what strategy the entrepreneur has chosen, and how much money he expects to gain.
Unlike investors in stocks or bonds, which pay dividends, equity investors who start a business must wait until the company is sold or goes public to have their investment returned. Entrepreneurs who are luring investors must specify in the business plan, which harvest strategy they’re planning.
The harvest strategy section of the business plan should specify what strategy the company will use, what the valuation will be at the time of exit, what companies are potential purchasers of the business, and how long it will take.
The two primary methods of harvesting investment are company sale, usually to a larger company, and IPO (Initial Public Offering), in which the company becomes publicly listed on a stock exchange and sells shares.
While there is no universal time frame for exiting a company, most investors expect to get their money back in 3 to 5 years.
Writing the harvest strategy into the business plan signals to potential investors or lenders that the entrepreneur is intending to grow the company and sell it, rather than run a “lifestyle business.”