Entrepreneurial foresight – Exit Planning
How to create an exit plan for your business
An exit plan is your blueprint for leaving your business when the time comes. It is a way to get your business ready for a change of owner. Having a well-thought-out strategy can not only increase the value of your business, but also ensure that your business continues to thrive after you’ve left.
Why having an exit strategy is not foreshadowing
An exit strategy is your framework for your business’s future. It allows you to visualize your goals and plans, and manage your assets accordingly, thus providing you with a clear map towards your long-term targets.
Additionally, an exit plan gives a clearer picture of your business’s worth. Drafting an exit plan involves a thorough evaluation of your company’s holdings, market conditions, and financial records. This can help you discover whether you are truly on track with your goals, or whether you need to make any changes to meet them.
Moreover, having an exit plan in place minimizes the risks involved in transitioning to new management. By having a wholesome plan in place, your business won’t waste valuable time organizing affairs, but can quickly take advantage of any opportunities to sell at maximum value if and when they present themselves.
What are the types of exit strategies?
There are six common strategies to exit a business. Which one you choose depends on your company and your personal business goals.
1. Liquidation – completely shutting down the business by selling all the assets.
2. Initial Public Offering (IPO) – making your company public by offering a portion as shares for public investment
3. Selling the business to an open market – putting the business up for sale at a pre-set price
4. Strategic acquisition – selling the company to another business for cash, stocks, or both
5. Management buyout – selling the company or a portion of the shares to the management team
6. Merger and Acquisition – merging the company with a much larger one
Choosing the best strategy for your business depends on how fast you want to exit, how quickly you want liquidity, and how well your business is doing. It also depends on how involved you want to be in your business’s future.
What are the steps involved in an exit plan?
There are quite a few steps involved in selling your business. Factoring in the emotional implications of this step makes this more than a little overwhelming. As such, having a careful plan in place can help alleviate a lot of the stress and ensure that you don’t miss anything.
1. Get your business valued
Before you sell your business, it is important to know exactly how much it is worth in the current market. Knowing your business’s financial health, future prospects, and the value of your assets can help you get a clear understanding of its economic worth.
2. Decide on the best time to sell
Consider the economic climate, competition, industry trends, and your business’s profitability when deciding on the best time to sell. This can help you identify the best time to get the highest value possible.
3. Pick a target buyer
Depending on who you’re selling to, your priorities might change. Decide whether you’re selling to family, staff, or simply to the highest bidder. This will help you manage your expectations for pricing and how quickly you will be getting out and liquidating.
4. Get your accounting sorted
Have at least two years’ worth of clean and transparent records available for the potential buyer to look at. This will also give you an idea on whether you can do anything to increase profitability and drive up the price.
5. Consider the legal implications
If you don’t have a lawyer, consider investing in one. There are a lot of legal waters to tread when selling and liquidating a company. A lawyer will help you get buyer protection and confidentiality and non-disclosure agreements in place, as well as ensure that you are compliant with state and local regulations.
6. Ensure your business can run without you
No one will buy a business that can’t run without you. Train your staff to handle the workload, ensure you have formal processes to get the work done, and ensure there are protocols in place to guide everything. Consider writing a small “how to” manual for the future owner.
7. Communicate with your staff
Keeping your staff informed may help keep the transition as smooth and efficient as possible. However, know when to tell your staff. The best time is once the deal has been finalized. This prevents potentially jeopardizing the process or affecting the value of your business.
Consider a top-down way of easing the decision news to your associates and senior management team first, and then the rest of the company. Try to make them feel involved and looped to any potential changes.
Be compassionate and transparent when breaking the news, and acknowledge how this might affect them. Be ready to answer a lot of questions.
Exits are a part of life
Exiting your business is inevitable. It will happen whether you’re in control or not. An exit plan ensures that the process happens on your own terms and the way you want it to happen. It helps you get a higher price and ensure that your business survives the transition.
It’s never too soon to start building an exit strategy. As Less Brown says:
“It's better to be prepared for an opportunity and not have one, than to have an opportunity and not be prepared.”
Get started. Talk to our advisors today for a more efficient, profitable, and easy way to manage your business as well as exit it.
,Disclaimer: ,Information included in this post is of general nature, it has been prepared without taking into account your specific situation. It is not intended to be and does not constitute financial advice, investment advice, trading advice, or any other advice. You should not make any decision, financial or otherwise, based on any of the information presented here without undertaking independent due diligence and consultation with a professional accountant or financial adviser.