As a business owner, at some point, you will start thinking about what’s next; very often this thinking results in creating an exit strategy (or exit plan).
Many business owners that I work with acknowledge the importance of an exit strategy, but they don’t know what it is in practical terms, and when or where to start. I encourage you to begin thinking about your exit strategy, even if your retirement is not for several years to come. Thinking ahead can make a big difference in the transition process.
Your exit strategy acts as a concrete, strategic plan for your business’ future. It involves careful consideration towards your business’ needs, and how you can best prepare your company for the changes that will occur. How do you confidently create your exit strategy, and what details do you need to consider for your company’s future? Below I’ve outlined the key steps you’ll need to consider in creating your exit strategy.
When should I start planning?
I’ve spoken to business owners who have said that they’ve started thinking about an exit strategy when they were in their 40’s. Although many business owners will continue to work well into their 60’s, it never hurts to solidify the strategy through advanced planning.
You’ll need to get your processes and procedures in place before you can exit, and depending on the size of your business operations, this can take years. Get started by looking at basic processes, including your sales processes and invoicing processes, and HR policies. Once this is done, you can move into operational procedures.
How do you start?
In the beginning, you’ll need to make a decision as to what you want to take away during your exit. For some business owners, money is one of the biggest motivators, and in these cases, your exit strategy may consist of selling your business, either on the market or to another existing business. However, if maintaining a legacy and seeing your business grow is your end goal, family succession or selling to an employee might be a better bet.
Start by determining your personal and business goals. Are you looking to sell your business, or pass it on to someone who will take your place? Think about if you want to stay involved in the business as a consultant. Have a clear direction in your mind so that you can know exactly how to begin with writing a concrete exit strategy.
A different type of strategy will be required, depending on whether you’re selling your business to an employee, or to a 3rd party. I recommend having a five-year plan in place, if possible. This gives you enough time as a business owner to put together the proper processes needed to inform your future successor of how your business operates.
A solid plan is one of the best ways of ensuring that your business remains in good hands. Without proper exit planning, you could be left in a situation where you, and your company, are left without the tools to manage the transition.
What do you need for your plan?
Strategy planning requires a goal. Once this is established, you can begin to compile a list of processes that the future business owner will need to know, including your HR process, sales manuals, accounting processes, etc. These processes dictate how your company has been run, and acts as a guide for any future actions.
Some business owners may also find it useful to have a dry run with someone who is already familiar with their business. This will be an opportunity for you to receive feedback in regards to your written strategy. It will also be a chance to spot any potential gaps in your plan, as well make modifications to anything that needs additional attention.
Do you sell your business, or do you pass it on?
Not all business owners want to pass their business on to a successor. In some cases, this can depend upon whether or not you’re looking to have more money for your retirement, or for your family’s future. If this is more important to you than carrying on your company’s legacy, you will want to look more closely into selling your business.
To begin this process, you may wish to take inventory of your business’ assets and work to increase your business’ value. Although this will take some time and requires advanced planning, it will help you maximize the asking price of your business, once you’re ready to sell.
When deciding on your exit strategy, it’s important to have a clear idea of what you need to achieve your end goal. I recommend writing down every detail you can think of, making sure that no stone is left unturned. Once you have a complete inventory of your business’ assets, you’ll be able to create the best possible exit strategy.
TAB regularly conducts PULSE Surveys with business owners on various topics. Retirement can approach so quickly that an exit strategy was the last thing on the mind of many business owners - who noted that their work-life balance was also amiss during their time as a business owner. Check out what other business owners are saying about this topic here.