Whether you started your business on your own or took over from a previous owner, you had more than enough to juggle when it came to familiarizing yourself with the role. In fact, it is likely that the very last thing on your mind was what you would need to do to prepare when it came time to move on to the next phase of your career.
UBS recently found that this sentiment rang true for almost half of all business owners, as 48% of leaders do not have a formal exit strategy. However, it is important to remember that starting your exit plan does not mean you need to leave immediately. Instead, by getting a head start on your strategy, you will be able to enjoy some added flexibility when the time does come.
Whether you are planning ahead, ready to retire, or are considering a new professional venture, be sure to cross these key steps off your to-do list before exiting your business:
1. Understand What An Exit Strategy Entails
- Do I want to be involved with the business in the future?
- Is there a family member, employee, investor, or partner prepared to move into an ownership role?
- Are there any marketplace trends that may impact the timing of my exit?
In addition to your answers to the questions above, you will also want to consider any business stakeholders, finances, and operations, so that you can outline any actions necessary to sell or close.
Depending on the kind of business you operate and the size of your company, your exit plan may look far different from another’s. However, the most effective plans share at least one thing in common: They all capture the true value of your business and establish a foundation for a new direction.
2. Outline Your Post-Exit Liquidity Needs
The first official step to developing an exit plan is to prepare an accurate review of your finances, both personally and professionally. Creating an overview of your expenses, assets, and business performance will help you get a clearer sense of what is fiscally possible. Plus, if the strategy you select will require some negotiation for a selling price, you will be better prepared to support your request for a higher value. If you do not take the time to account for your income, expenses, and liabilities, you may risk liquidity issues down the line. For business owners who are planning ahead, implementing a system now to track your personal cash flow will help you avoid these issues—especially post-exit.
3. Prepare Management
If you are considering an exit plan that allows the business to continue without you, it is important to ensure that management is ready for the transition. The goal is to ensure that your departure causes as little disruption as possible.
Once you have officially decided to exit your business, you can begin preparing by gradually passing some of your responsibilities onto new leadership while you work to resolve your strategy. If there are any undocumented operations or responsibilities that you own, create clear process files that outline everything the team will need to know.
Depending on the size of your company, another decision to make is how you will communicate your departure with the wider business. The most important thing is that workers hear the news from you—whether that be in a meeting or through a personal email—and, if their state of employment may change, what that impact will look like for them.
4. Select Your Exit Strategy
Once you have a clearer understanding of your long-term goals and the state of your finances, you can move forward with an exit plan tailored to your unique needs. Four of the most common strategies to choose from include:
Keep the Business in the Family
Some small-business owners may want to continue the family legacy by passing the reins over to a loved one. This can be beneficial as you have time to train your family members and can serve as an advisor once you do decide to step back. However, it is important to ensure that you have someone who is fully committed to the idea and that any business partners or investors are comfortable with the individual you select.
Merge or Become Acquired
With a merger or acquisition, your company is either purchased by or merges with a partner that has similar goals to your own business. This strategy can be
time-consuming as you have to wait for your business to be purchased, and your brand may not continue on as it once was. But, it does give you the option to negotiate terms as well as your price and provides you with the ability to walk away from the company.
Sell to a Partner or an Investor
If you aren’t the only owner of your business, you may want to sell your stake to a business partner or another investor. This can be one of the smoothest transition plans, as you are working with a buyer who is already familiar with your operations and understands the value of your business. But if there are no stakeholders that are interested in buying you out of your share, you may be forced to pursue another option.
Liquidate
Sometimes, a business owner may be ready to put an end to a chapter in their career. If that resonates with you, liquidation may be the most suitable option. Liquidation entails winding down your business and selling your marketable assets.
If you elect to liquidate, keep in mind that you must use the money you earn through the process to pay off whatever debts your business has and pay out any shareholders.
That said, liquidation can also prevent you from assuming personal liability for any outstanding tax debt the company owns.
Preparing Your Exit Plan
The best exit strategy for your business is the one that best fits your goals and expectations. By thinking ahead and considering your options long before you plan to step away, you will be better positioned when the time comes.
As you begin crafting your own exit strategy, you may want to work with a financial advisor to ensure your plans align with your long-term goals. For any questions that pertain to your exit plan, contact our team of business planning specialists.
References:
- Guta, M. (2021, March 12). 48% of business owners who want to sell have no exit strategy. Small Business Trends. Retrieved April 26, 2022, from
https://smallbiztrends.com/2018/02/business-exit-strategy.html