You may be thinking: "my business is going well, why would I need an exit strategy?" But an exit strategy is not something that you have because your business is not doing well. An exit strategy is something you have in case you want to leave your business at some time in the future. After all, you don’t know what the future holds.
A draft exit strategy will ensure you have a plan when something unexpected happens and you wish to or are forced to move on.
What is an exit strategy?
As the name suggests, an exit strategy is simply a plan to ‘exit’ your business and transition out. It will outline your plan to leave and the options for your business when that happens.
It is important to remember that an exit strategy is not just about selling a failed business or getting rid of a disastrous company. There are many other reasons you may wish to leave the business and an exit strategy will be very helpful for you. For instance, a family emergency pops up or you become seriously ill, and you may not be able to continue running the business. When something like that happens, the last thing you want to do is try and figure out what to do with your business. If you already have an exit strategy in place, you can start transitioning swiftly and, in the event of a sale, ensure a fair and reasonable price.
What makes a good exit strategy?
Funnily enough, the best kind of exit strategy is one that is planned for in advance. No business is the same and you need to ensure that the strategy you draft will suit your particular business and also suit you.
It’s actually a good idea to draft the exit strategy the moment you buy a business. This is not a negative approach; in fact, it is a realistic one. You can think of an exit strategy as a ‘succession plan’, in that you are thinking about the business when you are no longer around.
Two important questions to ask yourself when drawing up an exit strategy are how long do you want to stay involved in the business and what are your financial goals. There will come a time when you want to retire or simply just lose interest in the business. So when that happens, do you still want to have some sort of involvement or do you want to completely wash your hands of the business? Similarly, what about your financial interests? You’re here to make money so you need to think about the point at which you may want to leave the business once your financial goals have been met. This may be when the business proves to be a lucrative sale.
Consult a professional
If you are slightly unsure about drafting an exit strategy or pinpointing the appropriate strategy for your business, it is advisable to consult a professional. But remember, a professional will ask you about your financial goals and your long-term plans for the business so these are aspects you will need to think about carefully.
John Leonotti at QuickBooks has put it perfectly in this quote: “The planning starts with determining your personal and business goals, and then assessing your mental and financial readiness. After that, you need to identify the exit options that are most aligned with your goals and readiness.”
Start thinking about your exit strategy and, if you need a little assistance, consult a professional.