How to develop an exit strategy… and why you need one

You might be wondering why we’re talking about developing an exit strategy when we just gave you our top tips for starting a business.

Well, it’s because exit planning should begin with the formation of a business. To build a saleable business, you need to plan ahead.

This means you need to have a plan in place to make yourself redundant in the lead up to when you want to exit the business.

For many business owners, their business depends on them personally. So when it comes time to move on, they have nothing to sell.

You need to put people and processes in place to so that your business runs independently – so when it does come time to move on, you will be able to exit at a high point.

Possible exit strategies

The following strategies present a few options for exiting a business.

  1. Sale of the business – a larger business may want to buy your business to increase its size and client base quickly.
  2. Sale of a fee parcel – you may want to sell a portion of your business or a segment of your client base.
  3. Buyout of existing partners – if your business is a partnership, your business partner(s) may buy out your share of the business.
  4. Internal succession – building an internal succession program is the most long-term plan but will ensure that the culture of the business (generally) remains the same. This option is particularly popular in family business situations.
  5. Merger – a merger is probably the most complex exit strategy. The businesses need to merge first and be allowed time to settle before the partner exits.

Developing your exit strategy

The best exit strategy is the one that fits your business and your personal goals.

Firstly, you need to decide what you want to walk away with.

If it’s just money, selling your business or merging it with another may be the best choice. If watching the business grow from the sideline is your ideal scenario, succession planning could be the best option.

Ultimately, you want to get the best value for the time and energy you spent building up the business over the years.

When to exit

When exiting a business, you want to ensure you’re leaving at a high point. The best reason for an exit strategy is to optimise a good situation, rather than get out of a bad one.

But positioning a business for a good exit of the owner, either by sale or succession planning, can take upwards of five years to prepare.

You need to carefully review any deficiencies in profitability, liquidity, growth potential, client mix, service range and staffing.

Of course these areas would have been managed throughout the life of the business but a timeframe on your exit will give you time to fix any issues that may have slipped under the radar.

Use the five-year window to ensure all financial matters have been arranged to benefit from tax efficiencies, plan for any possible legal restraints and ensure you have a team of key staff around you.

Don’t wait until you are in trouble to think about your exit, rather think of the best way you can make a successful transition when the time comes.

If you would like some help defining and planning your exit strategy, contact us today.

Exit planning doesn’t need to be difficult or time consuming, but it will save you a lot of pain when it does come time for you to move on from your business.

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