The Importance of Having an Exit Strategy for Your Business

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At various times in different posts, I will mention the need for an exit strategy for your business which often includes “selling your business”. I admit that some business owners may very well struggle to even wrap their heads around this particular concept. Let’s face it, we often start a business and have all of these dreams of retiring in the sun without a care in the world, but to do that you need an exit plan and strategy.

You see, every business owner must have at least some kind of an idea as to how they will leave the business — sell it, close it down or transfer to family members are the common ways.

Not to be too blunt, but we will all get old at some point or unexpected health issues can hit us, so the ability or desire to own your business may come to an end at some point — either by choice or not. If you have built the foundation of your business correctly — exiting your business creates an opportunity to cash out on the years of effort.

So, how do you even develop an exit strategy? What’s the aim for your business?

I’m about to explain everything you need to know about this part of your vision and business plan.

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The Basics of an Exit Strategy

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As an entrepreneur, you have a vision. That vision is to build your business and make it a success.

Are you setting up your business so it is attractive when or if you decide to sell it?

But what about the end game? What is the final goal or target you want to aim for? 

These are all questions that are planning for an exit strategy

As the owner of a company, you must consider what happens to your business at the point of you wanting to stop working at it. Of course, some people do carry on until practically the day they die, but even then there’s still some sort of plan in place as to what happens to the business after that moment.

Your strategy and planning is effectively your way of having some sort of out from your business. It lets you know what’s going to happen at the end, no matter if you feel like selling the business, or closing it completely.

The problem is that you do have a number of types of exit strategies to choose from. This is where it gets tough. Knowing which one to choose may partly be your own personal choice, but there’s one other thing to think about.

Your exit strategy options will go in your business plan, and it should be in there at the initial creation of the plan, and before you even launch your business. However, your initial thoughts will be tweaked and may completely change depending on the future success of your business.

In addition, you will use this as a foundation for how you want to build your business (i.e. create the value).

One option is start your business, and you have the exit strategy that your end goal will be to sell all of your equipment and simply close it down. Basically, you are retiring and your business has then come to an end.

Another option is to get acquired by another business that could include a wide variety of reasons. When our staffing firm got acquired — the acquiring company wanted a stronger presence in our region.

Another common option is to transfer it to family members like your children so your legacy and the business can live on.

The actual strategy is more fluid than most people think, and the timeline between starting your business and exiting it will likely be just as fluid for some people.

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When Do You Have an Exit Strategy?

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So, when should you create your strategy and plan? Well, I’d recommend including it in your initial business plan. However, if you have already gone well past that stage, then it will never be too late to create a strategy that is workable for you.

Sooner is better as you can increase the value of your business the sooner you start to think about your future plans.

“Creating an exit strategy ideally starts many years before you plan to exit — 5, 10 years or even at formation all make sense”

To me, the most important thing of all is to have a strategy in place at some point. It’s known to provide you with a sense of focus and a target. Plus, it’s just nice to know that something is indeed going to be finite, and you can then plan for what will come after that point.

But all this talk about strategies is fine, but what options do you have? Well, there are several that are undoubtedly popular for business owners. However, it will be your decision as to which one you would prefer to aim for, but do consider asking for professional help and advice along the way.

The Common Exit Strategies

So, I get it that you may be sitting there wondering what on earth what your plan would look like. Well, I will give you some examples. In fact, they are the most popular forms of strategies around, and it’s because they are easy to set up, and also highly effective at what they do.

Management Buyout

First, we have the option of a management buy-out. This is widely used, and it’s easy to see why.

This option involves the owner selling both the operations and assets of the business to the management team. This method is fantastic for the future of the business, as these individuals are already fully aware of how the business functions. They know how it operates, what the staff are like, and also know about any problems.

However, don’t confuse this with a management buy-in. That’s different, as it’s where a management team buys into a company it has previously had no contact with, and then replaces the existing management team with their own.

With a management buyout, it may mean the business will change direction, but it’s common for the core of the business to remain the same. This may be important to you, as you have put in the blood, sweat, and tears to get the business to where it is today, and you don’t want to see it vanish entirely.

This means the management will have no learning curve to go through. There’s a sense of the business being passed on to safe hands. They tend to be driven and wish to push the company forward, as they have already invested a lot of time and energy up until this point.

If your company does indeed have a management level, then this could very well be an option to consider and can be a “Win-Win”

Strategic Acquisition

Another option is known as a strategic acquisition.

With this option, you are selling your company to a preferred buyer. It’s going to be another company that understands the industry you operate in, so it’s most likely to be some sort of competitor.

On a larger scale, you notice companies being snapped up by the behemoths of their industry, as they tend to like to buy up the competition to maintain their control. Alternatively, a competitor may be interested in expanding their operations, so they see your business as a great option due to your current customer base and revenue.

Of course, with this option, you are giving up all of your rights to the company. There may be some options where you maintain a small percentage of the company, but you have no say in what happens with the day to day running.

With this, you have the ability to often name your negotiate the value, and that’s quite cool. However, in determining the value, it’s advised to get some help.

A strategic acquisition, you can even remove the word ‘strategic’ from the equation, is certainly something I would suggest you consider. But then it does mean you need to have a business or an opportunity that others see the value or strategic reasons for acquiring.

Liquidation

There will also be the option of liquidating your company, and this is something that can be done quite quickly. Also, it’s a clear-cut strategy.

With this option, all of your assets are sold. If you owe any money to creditors, then they will be given the first opportunity to get back their cash from the value of your assets, before any investors, if there are any, will get some of their money back.

Of course, that is when liquidation is carried out on a larger company that has both investors and creditors. But it’s not limited to that type of business.

Any business can be liquidated at any moment, and I’m not talking about when your hand is forced thanks to soaring debt.

If you simply want to retire and end the business, then you need to do something with your assets. You need to effectively sell or remove anything of value, or else what will you do with it? All of the money tied up in assets will form part of your retirement plan, so liquidating it is the best option.

However, with this exit strategy, there’s no concept of your business then existing in any form after you are finished. Everything is done and dusted, so if that idea does not appeal, then this would not be the right extra strategy for you.

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What’s the Right One For You?

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With so many options, which one is going to be right for you? Of course, this may very well come down to personal choice, but it’s not always that easy to go and plan this far ahead.

So, this is what I would recommend.

I would first of all consult with a business coach with experience in helping to not only create the ideal exit planning and strategy, but also has implemented their own during their business career. I have done exactly that by building businesses and then selling them.

My experiences have taught me how to get from point A to point B.

Choosing the correct strategy is not always easy. Some business owners will argue that the correct strategy depends on the type of business or industry.

For example, some look at a business that is owned by a sole operator as being the type of thing where you simply close down the business and liquidate any equipment you may have when you want to get out. While that may be an option, it’s not always the best idea to go down that path.

In that instance, it may be better to pass the business on to the next generation. After all, why should all of your blood, sweat, and tears simply vanish overnight when there could be family or friends who would be willing to carry on?

But this is why you need to have some kind of an idea as to the exit plan you would like to have before you even begin.

Let’s say you would like your exit plans to involve someone buying out your business for a large amount of money that sets you up for the rest of your life. While that’s an admirable dream to have, it does mean the rest of your business plan must involve the steps that will take you to that end point.

Your business plan and steps you take to build your business must show the value created so it is attractive enough to encourage others to buy it.

Make life easier for yourself by getting professional advice from your business coach before you start to really implement any ideas connected exit planning. It will shape the entire future of your business.

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An Exit Strategy is More Important Than You Think

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With so many options, which one is going to be right for you? Of course, this may very well come down to personal choice, but it’s not always that easy to go and plan this far ahead.

This forces you into spending time considering different aspects of your business. You must think about certain things, including:

Of course, there will be other aspects of your business that I haven’t included in that small list, but the main idea is to give you key points to think about even at this early stage.

You see, when someone asks what you want from your business, then this is all part of it. If you wanted to have your own hair salon, for example, then people would ask about your end goal.

Perhaps you want just the one salon, maybe rent out some chairs to boost your income along with growing your own clientele. You figure you want to own a salon until you are 65. At that point, you figure you will be bored of doing hair and want to simply relax.

All of that goes into your business plan.

Throughout your business, you set end strategies, albeit on a smaller scale. You want to expand, so you have an end point that correlates to you achieving that expansion. You want to hire a certain number of employees, so you have a plan that leads to that happening.

Business is all about setting goals, creating plans, and then achieving them. The concept is just another one of those plans and goals just it comes with a more definitive ending, after which there is something completely different.

An exit strategy and plan gives your business and mind something to focus on. It gives you something to point towards as you reach for the sky. Not having that focal point simply means your arms are flailing around aimlessly, and that’s completely pointless.

To be frank, a business that doesn’t have an exit strategy, and like I said, then missing out a chunk of the business plan, does run the risk of not maximizing the value of your business. You become that rudderless ship drifting along, just hoping to be rescued. Even that would then cut down your chances of having a successful exit you hoped for, simply because your business would no longer come across as a viable proposition for a company to buy it, or even management to buy you out.

Nobody who is serious about running a business should ever find themselves in this type of situation. It doesn’t make business sense on any level.

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Your Next Steps

So, what do I recommend as your next steps? Well, that depends on the stage you currently find yourself at regarding your business.

However, I would stress several points that need to be covered immediately, if required.

First, if you don’t have a clear exit strategy and planning for your business, then get one. I would do this before carrying out any other plan for your business. I keep going on about the need for visions and goals, and this should be part of your business planning and goals.

Next, I would highly recommend seeking professional help and advice to create your plan, and then incorporate it into your business plan. Like I said earlier, I get you may not have created one when you initially launched your business, so I don’t want you to feel as if you are missing out.

It’s never too late to either create that strategy or to adapt your existing one. It’s never too late to develop your end goal or vision that you wish to attain in your business.

Without a good plan, your business is missing out an integral part of its development and potential growth. It drives you toward your end goal and maximizing the value of the business.

Make life easier for yourself by scheduling a free consultation with me today to see how I can help you attain not only your exit strategy and planning, but your goals in general.