The importance of having an exit strategy for your business
An exit strategy provides a clear path for your business to follow and keeps you focused on your goals. Whether you ultimately want to retire, or exit the business for other reasons, it facilitates a smooth departure when the time is right.
Your exit plan will typically form part of your overall business plan, and it is advisable to think as early as possible about how you might want to leave. This enables you to take the necessary steps to maximise your business’ value and achieve your main objectives.
The importance of a dynamic exit plan
A business exit plan helps you reap the rewards of all your hard work and ultimately achieve the highest value if you decide to sell. Importantly, any plans you make for exiting your business are not static.
If your market changes, for example, the national economy slumps, or you have concerns about ill health in the future, devising an exit plan plus a backup plan means you can adapt to new circumstances quickly.
What are the benefits of developing a business exit strategy?
Maximises business value
With a specific plan to follow you can maximise the value of your business over time by opting for the best types of finance, training your successors where necessary, and ensuring the business is at its healthiest financially and operationally.
Clearly defined business goals
An exit strategy equals control. You can set meaningful targets throughout the life of your business, all with a view to increasing value and optimising your chances of a successful transaction at the end of your business journey.
Accurate, reliable financial information
A key part of the selling process is buyer due diligence where the prospective purchaser scrutinises the information and data you have provided. This is to ensure accuracy and that it can be relied upon in the scenario of a business purchase. Your exit plan keeps the business on track financially – guiding you towards the best types of borrowing at different stages, for example.
Reduces the risk of failure
Planning your exit early reduces the risk of unexpected financial decline – from losing a key customer, for instance, or suffering sudden ill health. Having to sell your business quickly under these circumstances can seriously jeopardise your chances of obtaining its true value.
What do you need to consider when making an exit strategy?
General considerations for an exit plan include:
- Approximately when you want to make your exit
- If it is a family business, who you will pass it down to
- Whether you want a clean break or an extended handover period where you remain involved
- The most tax efficient route to exit
- How to incentivise key members of staff
As trading conditions can change dramatically over time, your exit strategy needs to be reviewed periodically. It is not a static document, but one that is adaptable to the inevitable changes your business will go through.
As retirement approaches, or the time comes to sell, a carefully planned exit will make the entire process smoother and help you successfully navigate this hugely important transaction.
