Plan your exit strategy

There’s No Time Like Today to Plan Your Business’s Exit Strategy

Developing an exit strategy for a start-up seems counterintuitive. After all, you’ve just written your business plan. The sooner you develop an exit strategy; however, the clearer your vision for your business will become. You’ll have a clear long-term goal for the future, know the optimal time to sell, and be prepared for the negotiations and the sale. You’ll know how much your business is worth and when it’s worth enough to secure your future. Planned exits are almost always more favorable than those that occur on the spur of the moment. If you focus on your exit strategy now, if a disaster occurs that forces you to sell early, or you need to liquidate to take another opportunity, you won’t sacrifice value because your books aren’t organized, or your processes documented.

Types of Exit Strategies

Successful entrepreneurs typically consider several exit strategies. Some of these are:

  • Keeping the business in the family. This also means developing a family member to succeed you.
  • Selling your business to managers or employees. Letting employees or managers buy the business over the long term motivates them to work hard for its success.
  • Selling your business in the open market. To do this, you’ll need a valuation of the business.
  • Selling to another business. A competing business or complementary one might be eager to buy the business. However, you’ll want to know the competitor is serious before showing them your books.
  • Launching an IPO. Taking your company public can be profitable; however, you’ll need to meet high financial compliance standards.
  • Liquidating. Getting as much money out of the business as possible and then closing it and selling its assets. This is the least favorable as liquidation value is highly discounted.

The best exit strategy for you depends upon your business and your own personal goals. By determining what you want to walk away with ahead of time, you can guide your business toward this goal.

Exit strategy meeting

Begin to Plan Your Exit Strategy

When beginning to develop your exit plan, follow these five steps:

  • Reflect on why you started your business in the first place. For example, if you started the business to create a long-term legacy, then selling it to someone who is like-minded might be a good strategy. If you started making as much money as possible, your exit strategy may either be building the business up to sell at a profit or getting all the money you can out of it and then selling to a strategic buyer. .
  • Ask yourself what your ideal situation would be and at what price you would consider selling.
  • Consider those things that make your company successful. These might include innovative products and the accompanying patents, the expertise of those performing the service or designing the products, production capacity, brand equity, customer-centric focus, access to certain resources, and lead-generation capabilities.
  • Determine the people (employees) and processes that are keys to the success of the business.
  • Ensure that all aspects of your business are organized and flow smoothly. This includes marketing and sales, finances, and manufacturing your product or providing your service.

Positioning Your Company for Your Exit

Once you’ve developed your exit plan, you’ll position your company for that exit. Regardless of the strategy you’ve chosen, some key actions will ensure your success.

  • Reduce or carve out personal expenses to keep them separate. Often processing business or private trips or meals through the company makes sense; however, lenders and buyers will become wary if this occurs too often or proof of these expenses is lacking. If you cannot reduce the expenses, one way to separate them is to assign them to one account with sub-account folders.
  • Document all your processes and procedures in an organized manner. This gives the buyer confidence and helps them understand what is happening now and what to expect in the future. Not having the documentation could lead to an extended transition period and lower price.
  • Clean up the books. Accrual-based accounting that matches revenues to costs works best for selling the business.
  • Begin hiring and/or training someone to do your job.

Focus on planning your exit now so that you can control the exit rather than the exit controlling you. We’ve helped many business owners plan and position their companies for their exit. We can help you clean up your books, develop key indicators, facilitate succession planning, and conduct an analysis and valuation of your business. Don’t wait until an illness, tragedy, or circumstance require you to exit. Contact us today.

Sarah Lieb
Sarah is a highly driven strategic financial partner and leader. Working in various industries including construction, marketing, education (digital/e-learning), technology, and manufacturing with multi-billion-dollar revenues. Working with several private equity groups to manage complex M&A transactions in the U.S. and U.K.

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