Planning your business exit strategy may feel an odd concept when you’re spending 24/7 building up your business. But a good exit strategy is an important part of any carefully considered business plan. An exit strategy isn’t solely about leaving your business. It’s about ensuring that you leave on your terms and with the best possible outcomes.
If you’re Logan Roy or Rupert Murdoch, you’ll have multiple family members and external parties vying for succession into your role. But that’s not the case for all business owners. And you don’t have to die to exit your business, believe it or not. You can step away by choice.
To do that, you need to create a business that can work without you. Your job as a business owner is to make yourself redundant. If it won’t run without you, you can’t exit the business.
Here’s how to make yourself totally replaceable in order to exit your small business successfully.
What is an Exit Strategy?
There are many reasons why you may want to leave your business. It may be that you’re ready to retire. You may want to sell up and move on to a new business. You may simply have had enough and want to claim back time for yourself. Whatever your reason for stepping away from your business, you need to put plans in place for its next chapter.
Exit planning will help you to choose how and when you leave – the preferred option for any business owner. Your business exit strategy is how you plan to sell your stake in the company to internal or external investors or another business.
You may want a business sale (in full or part), to merge with another business, to hand it on to family members, or to list it on a stock exchange via an IPO (initial public offering). I’ll go into these options in more detail below.
Why Do You Need an Exit Plan?
Thinking about leaving the business when you’re starting it may seem counter-intuitive. But savvy entrepreneurs have that end goal from day one, and it’ll influence business planning and strategic decision-making along the way.
That exit strategy will focus on leaving your business in the best possible shape for the new owner. A detailed plan helps to ensure a smooth transition whilst releasing maximum value from the business. It’ll also help you to protect the business that you’ve built up.
A Key Step in Exiting Your Business
My advice is to focus on your responsibilities as the business owner. Write them all down on a list and work your way through it, crossing off items as you delegate or outsource those tasks. When every one of those responsibilities assigned to you has been allocated to someone else, you can make a successful exit from the business. It may sound a time-consuming process, but it’s worthwhile.
Typically, a business owner will get someway down that list and will find a responsibility that can’t be crossed off. It may need to be outsourced, but you lack the budget to do so. Then, you need to go back a step. Work out how to earn more money to afford a person to take on your task. Once you’ve done that, you can tick the task off and move on to the others. Essentially, you’re making yourself redundant from your business.
What does an exit plan look like for successful businesses? Planning your exit strategy involves evaluating your business assets, market conditions, financial records, ideal business value and liabilities. It’s important to consider these factors from an early stage of exit planning:
- Establish your preferred exit: set clear objectives and timelines. Consider the interests of all key stakeholders.
- Carry out due diligence: review your business and benchmark it against your industry competition.
- Determine your business valuation: use that goal to develop your business strategy with maximum value and sale price in mind.
- Understand your financial position: check your tax implications, examine your cash flow and turnover, efficiency and profitability. Any buyer will want to see cash in the business.
- Identify potential buyers: think about who’d be a good match for your business and prepare to meet their requirements.
- Prepare a robust succession plan: whoever’s taking over your business will need key handover information and details for a smooth transition.
- Consider market conditions: make sure the timing’s right. Get your financial and operational processes in order. Do your due diligence on prospective buyers, just as they will on you.
- Regularly review your plan: adjust your exit strategy as business goals or market conditions change.
- Ask for help: refer to professional advisors and other business people for advice and support. It’s a lot to consider on your own.
8 Types of Exit Strategy
The most common exit strategies are:
1. Merger and acquisition
Instead of selling up totally, you could agree to a strategic acquisition or merger with another firm. That could be a venture capitalist or private equity firm that specialise in buying up businesses. Alternatively, you may find a competitor firm that’s keen to buy your share and get their hands on valuable business assets like intellectual property to expand their market share.
2. Selling your stake
You need to find the right buyer. A ‘friendly buyer’ is someone known and trusted. The ideal here is to sell your stake to a partner or venture capitalist investor who keeps the business running as usual.
3. Family succession
There’s something romantic about passing on a family business to another family member. In some cases, that’s been the legacy for generations. But it’s important to ensure that the person is up for the job and that the same succession planning is done as for any other investor.
4. Acquire
In this case, a company’s bought to acquire its talent. This type of acquisition often occurs with skilled employees. Generally, that means that your valuable talent will be well looked after once you’ve left the business.
5. Management buyout (MBO)
There may be an obvious stakeholder (or stakeholders) in the business who wants to buy your share and transition into the senior leadership role. As you’ll have an existing management team, they’ll be familiar with your business and well equipped to continue its work.
6. Initial Public Offering (IPO)
Opting to take your business to the public and selling shares can be lucrative. It’s also challenging as you’ll be under intense and ongoing scrutiny from stockholders, regulatory bodies and the public.
7. Liquidation
Liquidation is a pretty final exit strategy which is common amongst failing businesses. The business is closed down and all business assets are sold off to pay any debts and shareholders.
8. Bankruptcy
Filing for bankruptcy means business assets get seized. You’ll offload any financial debts, and you won’t need such a robust exit plan, but it will impact your credit rating.
Let’s Plan Your Successful Exit Together
There’s a lot to consider when planning your business exit strategy. If you’ve dedicated years of time and energy into a business, you want to preserve its assets, reputation and future security. All of that is possible if you consider your exit plan carefully. Make yourself redundant by extricating yourself from the business bit by bit.
It’s a lot to take on by yourself though. I can help you to make your plan and ensure you follow it. Let’s chat about how to create a business that you can step away from.
