What Is An Exit Strategy, and How Do You Plan It?

Entrepreneurs have many reasons for creating a business – ranging from ‘funding a lifestyle’ to ‘industry domination’. Whatever the initial opportunity or ambition, business owners are constantly managing the present and imagining the future.

Growth, profitability, expansion drive specific milestones; exiting is the final milestone and to achieve that well demands a strategy.

What are the key questions?

Once you have decided to exit your business, three fundamental questions need answers. Why? When? How?

Why?

Are you reaching retirement or lack the energy to continue? Are you reaching a plateau, a perceived limiting factor? Are you struggling to compete with antiquated systems, organisation or technologies? Have you received a cannot-refuse offer? Do other business or life interests compel? Was exit always the plan?

Entrepreneurs like to stay in control. Answering “Why exit?” keeps goals in focus and shapes business objectives.

When?

Before it’s too late? The best time to exit is when you’ve planned for it. Do you need time to mentor a successor, achieve a set value/size, develop markets/products, prepare for your next project?

Allowing flexibility in timing is necessary to avoid the desperation of hard deadlines, escape a global recession or pandemic or any other external factors which could impede plans.

How?

Following an action plan monitors progress towards achieving goals. What must the business look like for exit? Are your targets and ambitions achievable? Will you stay on or depart?

Business owners generally struggle to let go of their “baby”; but it’s crucial when exiting to work “on” the business, not “in/for” the business. Focus on what’s essential to shape your business for exit.

What is the best exit strategy?

Ideally, the one that you have imagined and planned.

Whatever strategy you’ve imagined, document it and run it in parallel to your business objectives whilst keeping your eyes on the ball! For most, options are:

Keep it in the family

Legacy or Lifestyle, this enables family members to develop and maybe grow the business to new heights, allowing you to stay as an advisor. Beware: Family/stakeholder friction can arise!

Sell to partners, managers or employees

Stake/shares or Buy Outs guarantee smooth transitions, preserves skills, loyalties and enthusiasm. Beware: Conflict between stakeholders can emerge!

Sell it in the open market (investor) or to another business

Merger or Acquisition. This is the longest process with no guaranteed outcome. Preparation is key to limit risks and maximise value. Ideally, attract multiple offers to optimise valuation through the negotiation of interested parties.

Shaping your business for exit?

You need a new focus that requires time and effort.

Achieving “best value” depends on being ‘market ready’ – work on your financial, commercial, operational, and legal due diligence. A good set of management accounts and verifiable Key Performance Indicators will help your business’ valuation. Shaping your operation, driving sales, clarifying contracts and potential tax status to avoid future restrictive warranties, all will give confidence around the sustainability of your business and the value that can be unlocked by the acquirer.

In concluding:

If you have decided to exit your business, document your exit strategy and spend time “grooming” your business and shaping it to be as attractive as possible. As interest reasons may vary, you will need to flex and adapt how you present your business to meet the aspirations and motivations of different potential buyers. To achieve your goals, define them and determine what your “walk away” position is for each - monetary, brand image, protection of jobs or other personal red lines.

Exiting your business takes time, skills, dedication and focus. Make sure your exit strategy includes support from your accountant, solicitor, broker, business advisor – relevant professional partners – to optimise both the process and outcomes.