Business Exit Planning
Every business owner will eventually exit the business. It is vital to understand which exit strategy best suits the owner and their business. However, choosing the best exit strategy isn't simple. Exit strategies are nearly always tough decisions. You must understand the advantages and downsides of each exit strategy, and we will help you with this.
What does an exit plan mean?
An exit plan means ending your involvement in your business. For most people, that means preparing your business for a change of ownership. The number of exit routes may seem endless, but typically, you'll choose from these eight strategies:
- Becoming a passive owner of your business
- Selling your business to one or more employees
- Selling your business to one or more co-owners
- Selling the business to an outside third-party
- Engaging in an initial public offering
- Liquidating the business
- Selling your business to employees using an employee stock ownership plan
- Transferring your business to a family member
It's wise to obtain the advice of a professional financial advisor with experience in exit planning for business owners before deciding which business exit plan works for you.
Why is exit planning important?
Business exit planning is vital for the following reasons:
- Exit planning gives you control of the exit
- You have time to prepare yourself for the exit and possible road bumps along the way
- You'll prepare for retirement and possible ill-health
- You can successfully develop your business with the future in mind
- You can mitigate the risk of financial failure
- You'll have time to attract the right investors
- You'll have more time to determine your business value
- You'll protect your assets
- You'll prepare yourself for tough negotiations
- You'll have your documentation in order
When should you exit a position?
How do you make an exit plan?
For most business owners, choosing when to exit a business is an incredibly tough decision. You may have spent decades growing the business into your dream company. As a result, starting a business exit plan is emotionally stressful and overwhelming.
However, there are some telling signs you're ready to start your business exit plan. Here are some of those signs:
You're ready for retirement, or you need liquidity from your business
The most apparent signs you're ready to exit the business are that you've reached retirement age and you need more liquidity to live comfortably.
Economic freedom is no longer there
Most business owners aim to achieve financial independence when they leap into the entrepreneurial world. Nonetheless, starting your own business venture isn't always financially fruitful. You may find you need outside investment along the way or a business partner who adds critical knowledge and resources.
The startup challenge has diminished
Many business owners relish the prospect of starting a new business. Yet once they've established a business and grown it into a financial success, they find the routine and predictability dull. Subsequently, they feel driven to build more businesses. If you feel you've accomplished your goal and are ready for the next challenge, you should consider starting your exit strategy.
Your business is thriving
If you're a business owner, you want your business to grow and thrive. However, it's never too early to start planning for your exit. Setting up an exit strategy allows you to leave the company in good hands while taking some or all of your stake in the company. No matter the timing, you'll want to make sure you have a plan in place for when you do decide to leave the company in the hands of your successors. We recommend starting early to maximize your hard-earned ROI.
Market uncertainty
Sometimes, owners of successful businesses — in all industries — will cash out because of uncertainty surrounding future market developments. Government regulation and business regulation may severely affect your business model. In other cases, competition may enter your market and threaten your business model.
Your business is IPO-ready
If you've been able to rapidly grow your business, you may want to consider an IPO to further scale your growth. Typically, you'll need a stellar customer base, profitable financials, growing revenues, and a considerable market share to consider an IPO. A successful IPO can provide a superb exit strategy if properly executed.
When you decide on your business exit plan, you'll need to follow these steps:
- Pick a target buyer - Your target buyer will be different depending on who you're selling to.
- Decide how fast you want out - Depending on your current financial situation, you may need to cash out now.
- Sort your accounting out - Many buyers will want two years of clean financial records.
- Make yourself redundant - If someone will buy your business, you'll need to scale back your involvement and delegate.
- Ensure your business is a well-oiled machine - You should ensure your business has efficient processes for getting work done. You'll impress buyers if some things happen automatically in your business.
- Get a business valuation - You'll never know what you'll get until you've sold your business. That said, you can get a rough estimate from a professional.
- Build your sales pitch - A successful exit requires a solid sales pitch. Practice your sales pitch and ensure you know how to present your business to buyers or investors.
If you're considering business exit planning, you should speak with a professional financial advisor with expertise in business exit planning. They will understand your concerns and queries and make the process effortless for you.
Start exit planning today
Planning to leave your business is much easier if you have a business exit plan. At Moffatt Financial Strategies, we have certified exit planning advisors who'll help you every step of the way.
Get in touch with us if you're considering exiting your business.