Why every business owner needs an exit strategy

Jan 31 2020

When you picture yourself in a room or building, having multiple available exits is not just a matter of convenience, it’s a matter of safety. The same applies to owning and running a business: establishing an exit strategy, a plan for eventually leaving and/or selling the business is part of smart entrepreneurship and lends a sense of safety to what is inherently a risky proposition.

In this article, EFM will show you what an exit strategy involves, and why every business owner must have a strategy in place.

What does an exit strategy involve?

Planning an effective exit strategy is going to be necessarily different for every business. It needs to include a customised plan that accounts for your company’s unique circumstances, market and industry conditions, trends, and the goals and time frame of the owner(s). There’s no one-size-fits-all template you can download and fill out to establish an exit strategy for your business.

That said, every exit strategy is going to incorporate an appropriate combination of the following elements, with minor variations for unique circumstances:

  • Goals: What does the owner want and need to get out of the business when they leave? Is it primarily a matter of profit, or are they eager to leave their mark?
  • Time frame: When does the owner want or need to complete the sale? If the time frame is flexible, it puts the owner in a much better negotiating position. If it’s tight, options and potential are limited.
  • Intentions for the business: Does the owner expect to see the business continue indefinitely after they leave, or are they comfortable with seeing it dissolve? This important factor will help determine if the business is to be sold as a going concern, merged with another business, set up for transition through succession planning, or simply liquidated.
  • What’s next? Does the owner want to take proceeds from a sale of the business to fund another venture or retirement? Or are they only interested in breaking even and getting out? A well-thought-out exit plan must address all these elements as specifically and concretely as possible. Otherwise, it becomes nothing more than a vague wish list rather than a vital part of the business plan.

Why is an exit strategy important for every business?

Today, most advisors recommend incorporating a thorough exit strategy into the business plan from the very start. While it may seem counter-intuitive to plan on starting or buying a business and simultaneously plan how you’re going to sell or remove yourself from it, this is the smartest plan in today’s fast-moving economy.

Here are some benefits of establishing an exit strategy as early as possible:

  • Provides a blueprint for success: If you don’t know where you’re going, you’ll never know when you get there. An exit strategy helps define success and provides a timetable for charting your progress.
  • Informs strategic decision-making: With no planned end game, it’s easy for business owners to get caught up more in the “job” they’ve given themselves rather than the long-term strategy behind running the business itself. An exit strategy keeps that endgame in view and can make day-to-day decisions more strategic.
  • Enhances the value of the business: “Value” is a relative term, so this doesn’t necessarily mean having an exit strategy will make a business worth more when it’s finally acquired or sold. Rather, having an exit strategy enhances the company’s value to the current owner since they will be guiding it toward their preferred conclusion.
  • Provides a flexible template: While the initial exit strategy will likely need to be adjusted over time as circumstances change if it’s there from the start, it provides guidance and benchmarks to use should unexpected events occur.

For instance, a sudden death, divorce, major health problem, or required relocation can cause an unexpected early departure from the business. If the exit strategy is already in place, a business owner or estate can more quickly and efficiently move forward without sacrificing value.

In addition, the act of creating an exit strategy – preferably with the help of professional exit planning advisors, including a business broker, legal advisor and accountant – provides a solid framework for the entire business life cycle.  This provides both practical and strategic advantages across the board, not to mention peace of mind for those times when the day-to-day running of the business is so stressful.

If you’re currently considering buying a business, or if you are preparing your business for sale, it’s vital to consider your exit strategy and get the help you need to ensure it incorporates everything you want to get out of your commercial ventures. Like a wisely placed door in a room, it will offer convenience, safety, and security in your entrepreneurial efforts.

After investing significant amounts of money and time into the business, it is unwise to lose the rewards of your hard work by failing to plan a successful exit.

  • Are you thinking about exiting or selling your business?
  • Is your business attractive to potential buyers?
  • Do you feel personally & financially ready to exit?

Exit planning is like any decision, there is a clear ROI which is extremely positive when an Exit is planned properly in advance. If you need help devising the right strategy for your business, then get in touch today!

You only get one chance to exit successfully so why not contact the central team via [email protected] or call 01442 8176 to help make sure that happens.

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