When you first start your business, planning your exit from it is unlikely to be at the forefront of your thinking. At the beginning, you’re probably thinking more about your vision for the company and its growth over the first couple of years and obviously we don’t want to discourage this.
However, thinking early about how and when you might exit the business has numerous benefits, some, obviously, that will pay off a few years down the line, but also some that could benefit your business in the short term.
Present a comprehensive business plan
Perhaps the first thing to be said for baking an exit strategy (or strategies) into your business plan from the beginning is that it will help you attract investors by building their confidence in your company.
For many who invest in a small business, their investment is only likely to realise its full value when the business is sold or they exit themselves. Therefore, whether you’re seeking funding from venture capital or angel investors, a clearly defined exit strategy will be crucial.
When an investor puts money into a business, their eventual exit will be a key consideration. If you can show potential investors that you have a solid exit strategy in place yourself, you will increase their confidence that you can make an exit, through a sale or other means, that benefits them.
Strategy breeds success
Exiting a business successfully can be a hard task to accomplish and one of the biggest obstacles to a business owner making a successful exit is a lack of planning.
For one, planning to exit from the outset will ensure preparedness when the time comes, meaning you aren’t scrambling around trying to get everything you need in order. You will be able to conduct a far smoother, more orderly and ultimately, more successful exit if you plan ahead.
Secondly, planning your exit can help facilitate it. Let’s say you’ve decided to make your exit by selling your business, potential acquirers will be encouraged to buy the business if they can see that everything is in place for you to exit in an efficient, pre-planned fashion.
One of the biggest hold-ups in a business sale is due diligence. If you’ve been planning your exit all along, you’re less likely to spend weeks sifting through years of paperwork looking for a document that your buyer needs for their due diligence.
Keep your finger on the pulse
Proper advanced planning of an exit will involve developing a deep knowledge of your industry and closely tracking the different factors at play in both your market and the broader economy.
Running your business in this way will help you not only guide your company through tough times, it will also help you to see when the time is right to make an exit and whether you should push back or bring forward your plans.
This will also help you keep track of typical business valuations and multiples, which can be useful for your starting valuation when negotiating a sale.
In this way, always having a sale in mind can also improve your day-to-day running of the company, providing a valuable incentive for you to fastidiously observe and stay abreast of developments in your industry.
Having an exit planned in advance can also help to ensure that you receive the right kind of windfall when you eventually do leave, by giving you the time to work on the elements of your business that will maximise its value.
After all, exiting is likely to be the most important, not to mention lucrative, payday you get from your business and you want to ensure that you’re properly remunerated for your hard work.
Having the foresight and time to maximise value-adding elements such as market share in your sector, brand strength and recognition, assets and intellectual property will help to ensure that, when the time comes, your exit achieves the right financial results for you.
Plan your exit... and your future
Thinking about your exit well ahead of time will be invaluable to ensuring you divest successfully, not least because you can decide early what kind of exit you are going to make.
Whether you plan to sell to another business, float your company in an IPO, pass it on to your staff via an MBO or Employee Ownership Trust, or name a family successor, deciding in advance will make the process that much smoother.
Finally, once you’ve got your exit plan firmly in place, even if you don’t intend to enact it for years to come, you can begin planning what you will do next. This might sound like trivial fantasising, but a common complaint among business owners who have just made an exit is that they sit around in the aftermath with no idea what to do next.
With a carefully planned exit strategy completed, you can turn your thoughts towards the next chapter. Whether that’s retirement or a new business venture, you might find that having the time to plan and look forward to this will make you a more efficient, happier business owner in the here and now.