You’re considering setting up your own business. It’s inception, launch, the start of everything. So why should you already be considering your exit strategy? Surely that’s much further down the track, nothing to worry about at this stage?
Quite the contrary, the most successful way to implement and realise an exit strategy, whenever it does become relevant, is to plan for it at the launch of the business. Establishing an exit strategy alongside the development of a business plan will inform the direction of your business, funding and growth.
What is any Exit Strategy?
What does ‘exit strategy’ really mean? The idea of an exit strategy, or ‘succession planning’ describes plans in place that allow you to leave your business by selling or otherwise stepping away. Plans or strategies to exit normally involve ways to reduce or liquidate your stake in the business. For a business that is profitable, an exit strategy would involve ways to realise that profit. If the business is not profitable, exit allows you to limit your losses and step away in the most economically protected way possible.
Why should I set up an Exit Strategy?
Be prepared for unforeseen circumstances
The nature of business is that change happens, and at pace. Setting up potential exit strategy plans allow you to better understand your options no matter what happens in the market or to you personally. Having a plan mapped out that you can quickly put into place can allow you to navigate unforeseen events, while extracting the most value out of your business. Having a valuation of your business in place, knowing your accounts and paper work are up to date and that you know the options open to you can be invaluable.
Using your plan to develop and maximise the business
Building an exit strategy into your business plan can actually help you to better build and scale your business. The work and consideration involved in establishing an exit strategy allows you to better understand your value and the market, as well as the risk and reward of business. It can also show any red flags early, pointing out where you can improve or maximise your business.
Secure value and direction
Integrating your exit strategy into your business planning from the outset means the value both real and potential of your business is always at the forefront of your mind. No matter what circumstances arise, you’ll be better equipped to take the steps necessary to extract maximum value at the right time. Making decisions early about your exit strategy also allows you to provide for the exit you actually want. You will have invested a huge amount of time, research, work, and often finances into the launch and growth of your business, it’s important that it moves forward in the way you want, or that you have control over winding it down in a sensitive and sensible way. Whatever the exit you want, make sure you plan for it.
What Exit Options Do I Have?
Consider Selling
Selling your share or the whole business allows you to move on to a different investment or project, to retire or to take a profit and have some time to decide what is next for you. Spend some time establishing what you are selling and be specific. Are you selling the whole business as a going concern? Or stock and intellectual property? Maybe it’s customer lists, physical store or location, or maybe it’s your online website and brand? Work with your accountant and business advisor to clarify what the value of each aspect would be and when it becomes relevant take some time to look for the right buyer. When it comes to a potential buyer, look first to your competitors, or companies who operate in a complimentary field who might be interested in taking over your market share.
Hand down to a family member
Many businesses throughout history have functioned as family businesses and handing over the reins to a member of your family can be a simple and obvious way to exit. Be sure you’ve found the right family member to turn the business over to. Talk to them about their professional intentions and goals and ensure your business goals and their personal goals are aligned. Will they take on the business and shepherd it in the direction you have invested in? Be clear with the parameters of your hand over, working with family can sometimes be more complex so clear is always the best way.
Arrange a Management Take Over
A management take-over can take a few forms. Firstly a Management Buy Out involves the company being purchased by the existing management team. You, the CEO would be relieved of your shares and ownership and in principle the company would continue to function as it has been doing with little change for customers or clients. Alternatively a Management Buy In involves the company being taken over by an external management team. In this instance there is less control around how the company will be run going forward and its normal to expect some change. Finally a Buy In Management Buy Out – BIMBO – is where the business is bought by a combination of the existing management team and an external management team.
Wind Down
This option is often seen as the least desirable and involves plans to wind down the business. In truth this can be the best option for some types of business – in particular for sole traders where the success of the business is largely dependant on them personally. If the company is solvent winding down involves settling all debts and removing any assets from the business before it ceases to exist. If the company is insolvent, winding down offers an option when it’s clear there are no obvious buyers or successors of if it’s unlikely the company will return to profitability.
How to know which to choose?
When it comes to deciding on which exit strategy is for you, take some time to consider your business size and type and what your long term goals are. What is it that you want out of your business and the rest of your professional life and what exit allows you to leave the business and your future in the best possible way? If you’re a partner in a smaller company for example, perhaps you sell your share to another partner? If you are a sole trader, you might prefer to take as much of the asset accumulation as possible from the company and then close down. Consider all options and include one or two in your business plan to protect yourself for the future.
Setting up an exit strategy (or two) as a necessary component of your initial business plan and ongoing growth planning is a clever way to safeguard the health of your business. To ensure the business will be ready for any transition while still realising maximum value and success. If nothing else, a planned exit is always preferable to a forced one.
Whatever your business idea, whether it’s just something you’ve been mulling over or whether you’ve taken some steps on the entrepreneurial path already, we’d love to help. Read some of our Go For It Success Stories and get in touch. Our business experts will be delighted to hear from you and to talk you through everything you might need to know to move forward with your business concept.