Why You Need a Business Exit Strategy & How to Get One

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Business Exit Strategy Business Sale Retirement Succession

How will you get the money out of your business when it’s time for you to move on? A business exit strategy will give you the knowledge in advance of how you will wrap up your involvement in your business. It can also help increase the amount of money you will be able to recoup too.

No one has a crystal ball and we can’t see what the future will hold. There are many reasons why you may need to leave your business, including health, family, a need for money, a change in interests and retirement.

Developing an exit strategy includes the creation of a detailed plan which identifies the steps to be done for you to leave your business. To identify the most suitable exit strategies for your business, an assessment of both you and your business should be done, along with a review of the implications the strategies would have.  This then provides you with a documented plan which states what the options are, the pros and cons of each and the amount of cash you could expect with each option.

Regardless of the length of time your business has been operating, the creation of a business exit strategy is a must. In this article, we will explain the benefits of having a strategy, what your options are and how to develop an appropriate strategy for your business.

What Are the Benefits of Having a Business Exit Strategy?

The benefits of having a strategy in place to exit your business include:

  • You can mould your business into the best shape for your chosen exit option. This will give you the best possible value from it.
  • It allows you to groom successors from within the business to make the transition flow smoothly for everyone.
  • You can leave the business at a time which suits you and when the market conditions are advantageous.
  • A protection plan for your financial assets will be in place.
  • The value of your business remains protected and buyers see this as a positive feature.
  • Informing strategic decision making by keeping the end goal in site.

You’ve worked hard to build your business, so why not do everything you can to protect your investment? Next, we’ll look at some exit strategy options you can choose from.

What Are My Business Exit Strategy Options?

To develop the most appropriate exit strategy for your business, you need to lay all of your options on the table first. To maximise the value of your business, your chosen strategy must be flexible and appropriate to meet your needs and requirements. Your options include:

  • Liquidation – basically this is the closing of your business and selling all of its assets. For many small businesses, this is often the only option. The advantages are that it can be done quickly and easily, with the biggest disadvantage being that you’ll receive only a low return on investment.
  • Merger or Acquisition – your business is purchased by a larger company who then merges it into their operations. Advantages are that it is highly beneficial for the purchasing company, and that you are likely to receive a fair sale price.
  • Initial Public Offering – this is when you sell your shares in the business to the general public. It requires a lot of pre-work to get this up and running.
  • Passing to Family Members – your business is kept in the family, and you are able to groom your family successor. You also may still retain a say in what happens with the business too. However, it’s easy for families to fight over the ownership and management of the business, and they may not even want it.
  • Selling to Employees – you may have a manager or a group of employees who would like to purchase your business.
  • Selling to an outside buyer – you could advertise and sell your business to someone who is not currently connected to it.

This then leads to the question; what should you do next?

Creating Your Business Exit Strategy

We recommend having a chat with us before you develop your exit strategy. Not only can we assist with a valuation of your business, but we can also help you identify the key data you need to collect to make the best possible decision.

This can include collecting information about:

  • Appearance of premises
  • Condition of assets including machinery and software
  • Accounting systems are current and appropriate
  • Customer files are up to date and easily accessible
  • Policies and procedures are documented
  • Employees are fully trained and efficient

You will also need to consider:

  • Who your target buyer is and where you will find them
  • How long you are prepared to allow the leaving process to be when it’s time for you to get out
  • You have at least two years of financial records available to share with the purchaser. You should also be prepared to answer questions regarding your expenses, revenue and historical cashflow.
  • That your business can run without you being there. This may mean training up employees and stepping back from your role, as well as having regularly reviewed written processes for employees to follow. Aim to step back at least several months before the planned exit
  • The value of your business as it stands, and what improvements you could make which would increase its value
  • How you will promote your business to buyers, also known as your sales pitch
  • What your family’s wishes are, if you are considering creating a succession plan for them to take over the business
  • Goals for your business in the future, including what your role will be and when you want to leave the business. Do you want to remain a stakeholder and continue to have a say in how the business will run? Or is a great financial exit more appropriate for you?
  • When is the optimal time to leave your business? This can include data regarding the historic revenue of your business, periods of growth and busy times of the year.
  • That your website is updated, easily modifiable and you can arrange training for the new owner.
  • All debts must be paid in full and any existing personal finances removed from the business.
  • All outstanding invoices are paid in full.
  • Non-core assets are sold off and the business is streamlined.

As business advisors and accountants, we can help with the creation and documentation of your exit strategy. We’re only too happy to help; get in touch with us today.

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