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The Importance of an Exit Strategy

Many owner-managers put in a lifetime of hard work building their business only to throw away some of the rewards by failing to consider properly how they will exit from the business.

It’s sensible to put an exit strategy in your business plan and review it annually; after all by planning an exit, you can help ensure that you make the most of your business.

Planning an exit is about deciding what you want out of your business and how you will execute your objectives to meet your long-term goals. We’ve put together some initial thoughts around planning an exit.

Identify your objectives

Some people go into business knowing exactly what they want to achieve in the long-term, some want to build a business to a level that when the time is right can be sold and others prefer to nurture a family business that can be passed on to their children when they are ready to retire.

Consider what you want from your business and not necessarily just the financial objectives; think about why you setup in the first place as this may help shape your thinking.

Look at the options

If your business is in a thriving sector with a steady growth span, then the option to sell when you are in the position to do so may appeal, after all the interest from potential buyers may already be there.

It’s important to be realistic. Many owner-managers have an inflated idea of the true value of their business. If you can’t think of a good reason why someone would want to buy your business, then you will struggle to sell it.

Selling however isn’t your only option. Consider passing your business on to a family member, merging your business, floating your business on the stock exchange providing it has a significant turnover or shutting your business down. All these are options to consider based on your own personal objectives. Of course no one wants to think about failure but it is a reality in business and it is a type of exit that should also be considered in the mix.

When is the right time?

Identify a particular year, level of sales or other objective (e.g. if you plan to retire at 65, you might want to start considering your exit at 60). You can always change your plan later if you need to). If you are thinking about selling then always aim to exit when profits are increasing and likely to grow further.

Thinking about your preferred age of retirement, lifestyle choices and finances can all play a role in deciding when to make your exit.

Remember by including your exit strategy in your business plan and by evaluating it annually, you can review your ongoing options.

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