Why have a business exit strategyAll good things must come to an end. If you own your own business, the end can only come in three ways: selling your business, giving it away or closing up shop. And the best way to ensure the decision is yours to make is to have a plan – a business exit strategy.
An exit strategy is basically your plan for how you want your involvement in your business to end. It is an essential component to a well-designed business plan – without one you could be left with a business you can't sell or is unsuitable to hand over when the time comes to move on.
Clear goals and objectives need to be determined early in the piece and all options considered. Options include when to exit and how this will be achieved. It could be an outright sale, a progressive buyout, a merger or bringing a family member onboard. However, it’s important not to make assumptions. Assuming a child or other family member will want the business or have the skills necessary to run it and keep it afloat can backfire. Therefore, an exit strategy should cover all contingencies.
Whatever the situation, it is imperative to begin considering the future of your business today. Many business owners focus all their energies on growing their business without giving a thought to preparing their business for sale. Unfortunately, as the years pass by, opportunities to enhance their business' value and position it for the maximum selling price can be missed.
Business exit strategies should not be set in concrete; they should be flexible as circumstances change. A good rule of thumb is to ensure your business is always in saleable shape so when something unforeseen happens, such as illness or accident, a good sale price can still be realised.
Key factors in delivering your exit strategy are likely to include well-developed business systems that manage your processes, workflow and productivity. The systems should also help reduce the dependence on people – in particular, you. Nobody wants to buy a business that can’t thrive without the previous owner. Anything a business owner can do to train employees or document procedures to allow a new owner to run the business well is going to be of great value.
Arguably the most important component of your exit strategy is a healthy cashflow
Buyers buy on facts and good information is essential. Buyers look at that all-important bottom line, if the business has great systems and processes, and the business’s potential - it's important it has a good upside. Good financial records over a number of years will attract better quality buyers and give you a greater result.
Owning and operating a business can become all-consuming and it is important to take time out for family and holidays, and to have the time and energy left over to explore and develop other interests. This is particularly helpful when it comes time to exit your business – it will make the transition easier.
Whatever your exit strategy, try and determine the needs particular to you and your business. Some business exit strategies take more time and thought than others. Keep in mind that the most successful exit strategy is the one that delivers what you want, when you want. Seldom does this happen by chance - ensure your business is "Business Sale Ready".
Share this article:
- How to sell a business
- Profit vs value when selling a business
- Why have a business exit strategy
- The process of selling a business
- Who will buy my business
- Great business systems make great businesses
- Your options when selling a business
- What do business buyers want?
- Write a better business for sale ad
- Marketing your business for sale
- 7 business exit strategies
- Selling a business to get your best price
- Keeping your business relevant
- 5 Questions before you sell a business
- 10 questions to ask your business broker