You’ve spent years building your business. What happens next?
Exit planning helps you define your goals and prepare for your transition, whether it’s years away or closer than expected.
How long do you plan to continue working? Who will oversee your business when you’re no longer involved? If you are unsure of the answers, it’s time to begin planning.
When Exit Planning Should Begin
It’s never too early to identify your preferred exit method and begin planning accordingly. You may have a general sense about your exit—closing the doors and walking away, selling or transitioning to a new owner, or passing your business on to a trusted family member or employee. But ideas are not the same as plans. Planning an exit strategy is a necessity to cover all the potential possibilities, including an unexpected exit. Discuss your ideas with a trusted advisor such as your CPA or lawyer and document your plan so your intentions are clear. Planning now will result in a higher value on the eventual sale date. Start early to maximize this value.
Why Exit Planning Matters
A business without an exit strategy is vulnerable to limited options, lost value, and rushed decisions if circumstances force a transition. An exit strategy allows a business to mitigate risk, protect value, create options, and facilitate a smooth transition, regardless of the reasons for the exit. Even those who don’t plan to sell their business should have an exit strategy if circumstances require an exit so that their customers, partners, and employees are protected. Because it can take up to five years to prepare a business for sale to obtain the price you desire, planning is essential.
What To Consider When Beginning Exit Planning
- Your future role in the business – do you want a phased exit?
- Your liquidity needs – when do you need the cash and how much?
- Your company’s future potential – a strong business can easily outlast the founder
- Current market conditions that may impact timing and value – consider exiting when your industry is “hot”
Don’t put your business on the market until you believe that the price tag will meet your needs – do your homework and get the advice of a professional as you go through this process.
Steps in Exit Planning
The initial focus is on understanding when and why you want to exit your business. To achieve your goals, the plan should preferably be multi-year. Below is a basic outline for an exit plan. It will need to be integrated into your business plan and updated regularly.
Introduction to Your Exit Plan
- Define purpose and objective
- Determine timing
Post Exit Goals
- Identify personal goals – what will you do with your time?
- Plan financially – how much money do you need to support your lifestyle?
- Calculate your value gap
Readiness
- Arrange finances
- Prepare mentally
Options
- Consider your options for an exit
- Know what each option means for you
- Obtain a business valuation that considers your desired options
- Align options with your goals
Define Your Strategy
- Determine which options best match your goals
- Understand where you are compared to where you want to be
- Set specific value-building steps to achieve your goals
Implement Your Strategy
- Follow the steps to prepare your business for a successful exit
- Create your team, legal, tax, estate planning, and financial planning
- Identify a deal maker (when deal time approaches)
- Prepare legal agreements
- Plan for personal finances
- Obtain estate planning
It’s not a plan if it’s just in your head. Create a written plan and engage your advisors and put things in place to ensure that your plan will become a reality.
Exit planning is most effective when it starts early.
Whether you’re years away or beginning to think about next steps, a structured plan can help you protect value and expand your options.