An exit plan is as crucial as a business plan. It can be simple to pour all your work into your initial business plan and the improvements down the road, but forgetting about an exit plan can be a significant hiccup. Many times business owners will only consider an exit plan once significant changes have occurred, and this can leave choices being made on snap decisions rather than well-thought-out ones.
To ensure the best for your business, develop an exit plan before it is time to leave.
When Do You Want to Leave Your Business?
Taking into consideration when you want to leave your business is essential. You must think about the business’s financial performance, budgeting, and whether choosing to exit your business is feasible.
Evaluating your business before creating an exit plan can give you an outline of where your business is, its stability, and what the best options are. This time in between can also give you a chance to come to terms with the timeline and what it means to leave your business.
Assessing your financial performance can give you insight into your revenue. This is one of the first things potential buyers will see, and before you go selling your business, you should better understand where your business is currently. This gives you the opportunity to make changes or implement any financial shifts. Budgeting can also help you create a timeline for when it is best to sell. If you have a solid budget, it can help against financial risks and determine the business’s long-term viability.
Your business’s financials are an x-ray into the health of the business. This is your way of answering “when.”
Weigh Your Selling Options
When designing your exit strategy, you want to consider who you are going to sell to or not sell to. There are many options out there, and you don’t want to sell to your first option if it is not the right one.
You have the option to sell to a strategic buyer, someone close to you, or an investor, or you can choose to close the business or have a buyout. Depending on the business and your goals for afterward, any of these can be valid options for owners.
To sell to a strategic buyer means selling to someone who understands the industry, can accelerate plans, and get the business into a profitable and successful place. If you sell to someone close to you, this might mean selling to an employee or manager or even passing it down through the family. Selling to those you know can be a great way to keep the business in your life while allowing it to grow with someone else who knows the company and industry.
You can also do a buyout where stakeholders buy your share of the company. And lastly, there is the option to close the company altogether. You can liquidate your company over time and continue to give yourself a paycheck, or you can quickly close and sell your assets immediately.
How Much Do You Need to Get?
Considering the price you wish to get for your business while creating an exit strategy can ensure that you stay realistic while also not lowballing yourself and taking less than what your company is worth.
Calculating how much you need to get from your business can help you get a profit or, if the business is struggling, help you limit the amount of loss. The price of your company should be calculated based on the timeline of your exit and any needs the business may have in order to be better after the sale. A company’s price is often higher than its current market value.
Who Does It Affect?
One thing to remember when designing an exit strategy is that it does not solely affect you. It will affect your employees, investors, stakeholders, and anyone closely involved with the company. You have to consider them during this design process.
Think about if you want your employees to move over with the new owners and have that conversation with them to see what their opinions are about the changes. Your employees know your business in and out, and they might be one of the strong selling points of the company. You will also want to assess where your investors and stakeholders are on the decision and share your exit ideas with them.
Your exit strategy should not be created at the last minute. If you have questions or want assistance designing your exit strategy, contact the team at ReVera Capital.