Often in life, we wait until a change happens to make a big decision. Exit planning is an example of something many business owners put off. According to a study by Baker TIlly, 83% of small business owners do not have an exit strategy. The earlier you establish your exit strategy, the clearer the vision for you and your company. In this blog, I will define what an exit strategy is and the importance of one.
What is an exit strategy?
An exit strategy gives business owners like you, a way to reduce or liquidate your stake in a business and, if the business is successful, make a substantial profit. If the business is not successful, an exit strategy enables you to limit your losses.
Why do you need it?
There are a number of reasons why you need an exit strategy. First and foremost, an exit strategy gives you a roadmap for how to sell your business when the time comes. This roadmap can help you get the best possible price for your business and ensure a smooth transition for both you and your employees. Secondly, an exit strategy can help you prepare for unexpected events, such as the death or disability of a key employee or owner. If something happens and you’re forced to sell your business sooner than planned, having an exit strategy in place will help you get the best possible price and terms. Last but not least, having an exit strategy can simply give you peace of mind. Knowing that you have a plan in place for how to sell your business will allow you to focus on running your business day-to-day without worrying about what will happen down the road.
Factors
Deciding on a sale price will not be enough when you plan for a business exit strategy. You need to consider several factors in order to have a smooth business exit plan in place.
The following points are some of the factors to be considered for a smooth, efficient and effective business exit:
Deciding on the mode of exit:
- Transfer of ownership or business
- Sale of the business
- Sale of assets
- Selling a part of the business
Find out about the prospective buyer:
- To existing partners
- To family members of existing partners
- To the third party
- To a party who is in similar business
Deciding and analyzing factors such as:
- The estimated price/consideration for transfer or sale of business
- Who will take the reins of the new business?
- Optimizing the business worth
- Selling of business at the right time
- How the business will benefit by change of hands
- Type of competitors out there in the market
- Any specific training requirement for business
- Any important key performance parameters
Importance of an exit strategy
A pre-planned business exit strategy is always helpful in times of sudden trend change in business. It keeps all partners aware and aligned in terms of what steps will be taken in case there is a plan to sell the business anytime. It is always good to have an idea beforehand about who might be interested in buying out or taking over your business.
All in all, it is never a bad idea to have a business exit strategy in place. Also, having such a plan in place at the beginning is a great idea, but it is never too late to create one. Exiting a business does not always mean closing or shutting down of business. Instead, it simply helps to be prepared in advance regarding the estimated right value and time for selling or transferring your business for its development and potential future growth. On the other hand, if the business has not really taken off well in the market, it is better to ask for assistance or exit the business. Remember, it is better to exit a business than continue running a failing business.
Ultimately the focus is on maximizing the benefits and value of the business, and an exit plan is as integral to the business as it can be.