Proper exit planning should begin the moment you open the doors to your business. That’s not to say everyone follows this method, but it is safe to say that long-term exit planning will make the eventual sale or transfer of your business much easier and more profitable. Many business owners are surprised to discover that when they are ready to sell, their business is not, and they must endure a lengthy process of preparation to list it. If you have a few years before you are ready to sell, you can use this time to your advantage and set up a strategy that will gradually prepare you for a comfortable exit.
Benefits of an Exit Strategy
An exit strategy helps to provide you with peace of mind that you can exit your business profitably. It protects the value of the business you built and helps you to generate income for your eventual retirement. It helps you to provide a strategy for growing your company and enhances its future value. Having a well-developed exit plan helps you to plan for future tax liabilities, and gives you leverage when it comes to capitalizing on market conditions. It also allows you to create a smooth transition for the business for the day when you eventually transfer ownership to someone else.
Setting Your Goals
Consider your individual goals when planning your exit. Your exit plan should be one that aligns your business and personal goals. Do you have a specific return on investment you are looking to achieve before selling? Do you plan on removing yourself from the business entirely, or maintaining a more passive role, in management or as an advisor? What is your timeline for leaving the business? When you know the answers to these questions, you can plan accordingly.
One of the most common exit strategies is the acquisition strategy where your sell your ownership of the company and cut ties entirely. This is a great option if you are looking to retire or move on to a new venture. An alternative is the merger strategy, where you merge with a larger company. This strategy usually increases the value of the business and allows you to take on a management role in the new company. Selling to a friendly buyer is another great way to exit a business. Having a relative, colleague or key employee as a successor allows you to groom them over a long period of time to carry on the legacy of the business. It also allows you to maintain a smaller role in the business after the ownership transfer.
Transitioning Your Role
No matter what your goals are, your business will eventually need to be able to operate independently of your presence. If you are heavily involved in day-to-day activities, selling your company could be much more difficult. Many investors do not want to purchase a business that becomes a full-time job. Businesses with heavy owner involvement typically have substantially lower values and take longer to sell. By starting your exit planning years in advance, you have time to establish the management structure needed for your business to run with minimal guidance from you.
It is important to allow yourself enough time to transition away from the business, so your decisions aren’t done in haste. You will need an adequate leadership team to move the company forward in your absence. If these people are not already at your company, or are not prepared to step into bigger roles, you need the time to hire, train, groom and build relationships. Then you must begin to gradually relinquish control to the leaders you put in place. This means delegating more duties, such as payroll, HR tasks, sales, marketing, customer interactions, just to name a few.
Once you have the right people in place, you need to start moving your vision for the company forward. With your exit strategy as a guide, company decisions should come easier. It’s a lot harder to get somewhere if you don’t know where you are going, and an exit strategy serves as your roadmap for the future. It you to create a favorable outcome for yourself and your business, so you can be prepared to exit, even when live presents you with unexpected circumstances.
Selling Your Business at the Right Time
By preparing your exit far in advance, you allow your goals to develop and come to fruition before it’s time to sell. Many business owners who want to sell haven’t done any exit planning and are surprised at the level of preparation necessary to sell. When you have an exit plan and transition your departure well ahead of time, you have more flexibility over timing the sale of your business. Whether the market gets hot and you want to capitalize on great economic conditions, or it you have health issues or another personal crisis, having an exit strategy and sticking to it, can ensure you will be ready to sell at any time.
If you are getting ready to put together an exit plan, it’s a good idea to know what you need to work on. You may already have an exit plan, which is great, but it is also a good idea to revisit your strategy every so often to make sure it still aligns with your goals. Corporate Investment Business Brokers (CIBB) can help guide you through the process and formulate a clear plan of action that you can abide by. Our brokers can assist you with transferring your responsibilities to new leadership and gradually reducing your involvement. Contact us to find out how we can help.
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