As soon as you start a business, should you be looking at your exit plan? Exits happen and you can choose whether to stay in control of the process or not. The best exit strategy lets you walk away with your financial security or legacy secured so it’s never too soon to start developing your vision and highlighting your strategic value.
There are two ways to think about your exit plan – planning and goals and disposal of your business. Here are 10 things to consider in your business exit plan to ensure smooth transition while maximising value.
1. Decide on a buyer
Your choice of buyer will determine the way you plan your exit. If you’re looking for a quick sale, immediate financial reward and a clean break, then opt for the open market. If you’re planning to secure your legacy with a family succession or a management buyout, be prepared to be transparent and to manage your exit in a timely fashion that protects your investment while you wait for staggered payments.
2. Focus on good health
Give your business a health check so that you’re in the best possible shape when it comes to maximising value. Get your accounts up to date and make efforts to ensure you’re increasing cashflow into the business. Put formal and effective business processes in place and write detailed job descriptions. You should also look into automating repeated tasks. Potential buyers outside the business need to be impressed with your efficiency.
3. Work on your pitch
Your elevator pitch should focus on creating an exciting narrative that foregrounds how your business started, how it’s grown and what you’ve achieved. Paint a fact-based vision of the future that illuminates the value of your business and makes it attractive to potential acquirers.
4. Drive up the valuation
Define what gives your business value, whether that’s customer loyalty, outstanding products and services or intellectual property. Have your business audited to identify strengths and weaknesses then put best practice into place to make the most of your assets and minimise growth limiters. You’re now in good shape to ask for a professional valuation that can help you set realistic expectations and inform your sales pitch.
5. Focus on your exit
If you’re an entrepreneur, your exit should be baked in from the start. As a founder of a startup, your personal value diminishes over time as you focus on managing instead of creating. Focusing on the start it, build it, sell it model reduces risk and minimises the dilution of value or the need for further investment rounds.
6. Continue the legacy
If you intend to secure your legacy by keeping the business in the family, be practical about the transfer of power and assets involved. Developing your successor from within the family might not be practical or may cause friction with other family members and management. Be very clear as to whether you intend to exit completely or maintain some form of oversight in an advisory capacity.
7. Sell your stake
If you aren’t a sole trader, selling your stake can be a quick and effective way of disposing of your share of the business. You’re dealing with a buyer or buyers you know which can ensure a smooth transition and a business as usual exit strategy.
This is the right way to exit your business if you’re not interested in retaining any kind of active role and simply want to make a profit and secure your financial future.
8. Wind it down
Liquidating your business is the most draconian exit strategy and involves closing the business down completely and selling any assets. Winding down a business also has a broader impact on employees and customers, and any money that you make must be used to settle outstanding debts and recompense any shareholders.
It’s a simple and quick exit strategy but rarely to be recommended if you wish to maximise the value of a business you may have spent years building from scratch.
9. Opt for a buyout
Selling your stake in a management buyout or employee takeover can ensure a smooth transition as the acquirers are already familiar with the day to day running of the business. You’ll be handing off your company to individuals you trust and who may be happy for you to take a consultancy or mentoring role going forward.
However, be sure to seek independent legal and financial advice and keep lines of communication open with existing clients who may disapprove of any change of direction.
10. Sell the business
This could involve being acquired by another business or selling to the highest bidder on the open market. Competing businesses can be highly motivated and if you’re a desirable acquisition, this can be an effective way to realise the maximum profit in the shortest time. Selling on the open market is the most popular exit strategy for small businesses but make sure that you spend some time making your business as attractive as possible to attract potential buyers.