Your exit strategy is an integral part of your business plan. Although it may seem far off, it should be considered in the same way as your operational, financial and sales strategies.
Thinking about your exit in advance will make the process much easier when you look to sell the business. You will have a complete understanding of the criteria to meet before departing, allowing you to leave the business in the best possible shape.
This guide lists why your exit plan is crucial and how to write yours as part of your broader business plan.
Why does your exit strategy matter in your business plan?
Even if you don’t intend to leave your business for many years, it’s recommended to consider your exit early.
There are many benefits to thinking about your exit in advance.
Firstly, it pinpoints what you want to achieve as a business leader. Many entrepreneurs start a company with a specific vision, and won’t want to leave until it has been realised. This ties into your personal goals, allowing you to go with no regrets.
It also gives you a focus when running your business. Your strategy should outline the desired route to exit (for example, passing onto a family member, selling to a third party or a management buy-out). You will create the conditions for your preferred route, including maximising the sale value.
You may implement other criteria in your strategy, such as what will happen to staff, shareholders and partners when you leave. Again, outlining your intentions will enable you to create the best exit scenario and find buyers that suit your interests.
Investors and other stakeholders within the company are also likely to be interested in your exit plan, so showing that you have thought about it will give them increased confidence to support your business.
Simply put, your exit strategy determines how effectively you step away from the company. A strong plan should allow for a smooth transition in which all the necessary parties are satisfied and disruption is avoided. You will then leave confident that the company will survive in your absence.
What to include in your strategy
It’s essential to know what to include in your exit strategy when incorporating it into your business plan. We’ve listed the elements you need to write into yours.
When you intend to exit
One vital part of an exit strategy is when you intend for it to happen. In most cases, you won’t be able to pinpoint the exact date, especially if you have just started the business and don’t plan to leave for some time.
However, even having an approximate date can make it easier to organise your exit. With a rough timeframe, you will better understand what needs to be done and when. It will give you a deadline to achieve your goals.
The preferred route of exit
Another crucial part of your exit strategy is how you leave. There are many potential routes, including:
- Family succession
- Management buy-out (MBO)
- Third-party sale whether to investors, competitors, or others
- Liquidation
- Initial Public Offering
Each route has specific considerations. They rely on you having the right management team in place to hand over to and creating conditions that allow for an easy transition.
In some cases, your form of exit may be forced by external factors. However, have a preference to work towards, as this will shape your planning.
Target buyer
You need to hand your company over to capable leaders. Doing so will protect your staff and customers while extending the brand’s legacy. Part of your exit plan must focus on what your ideal target buyer looks like.
There are many factors to consider when searching for a buyer, including:
- Will they offer you a fair price?
- Do they have the skills/experience required to run the company?
- Will they honour your existing staff/supplier contracts?
It’s wise to outline your criteria for a buyer, so you can see what requirements they need to meet, thereby streamlining your search.
Alternatively, if you are pursuing a family succession or MBO exit, focus on the skills of the people you intend to hand over to and how you need to nurture them so they’re ready to lead.
Goals to achieve before exit
Before leaving, you want to achieve as many of your goals as possible. It will allow you to leave the company without regrets and progress in your entrepreneurial career as well as maximise the value of your business.
Write a list of your goals before exiting to guide your time with the business. Aim to tick them off, so you realise your ultimate vision before passing the torch onto someone else to take it further.
Once you have achieved your goals, as listed, it’s also a sign it could be time to move on.
Potential liabilities
When you leave a business, there are many factors you need to take care of first. One of these is the company’s liabilities.
Examples of action you should take includes:
- Paying off debts
- Settling ongoing suppliers invoices on time
- Running a good credit control process
- Keeping tax payments up to date
By addressing your liabilities, you will improve the sale value of your company and make it more attractive to buyers. It will also make the handover process more manageable.
Tasks to complete
Alongside your liabilities, there are other tasks you should look to complete for a smooth transition when you exit. Some will be necessary to move forward with your plan. These include:
- Updating company records and accounts
- Advising regulatory bodies of the change (required in some industries)
- Agreeing ownership of assets, including intellectual property and ensuring that these sit within the company
- Obtaining agreements from any other shareholders
There may be others specific to your company. Think about these tasks in advance and list them so that you know exactly what needs to be done when the time comes to exit.
Communications plan
Finally, you need to inform people of your exit plan. It is crucial to do this at the appropriate stage, so people have time to adjust.
People you need to tell include staff, customers, shareholders, suppliers, etc. They may need to be informed at different points, so aim to create a timeframe that covers everyone.
It’s also crucial to avoid getting the news out there before you are ready, which a watertight communications plan should avoid.
Conclusion
Your exit strategy has seismic ramifications for your business, affecting your staff, customers and stakeholders. It will also shape how you operate in the present.
Due to this, it’s crucial to contemplate your exit plan in advance. Doing so will enable you to set expectations about how you will leave and create the appropriate conditions. You will then guide your company, so it survives your exit while allowing you to realise your ambitions beforehand.
Investors and lenders will also review your exit strategy, so having one will fuel your funding potential. It will be looked on more favourably if it is well thought out.
We will help you create an effective exit strategy for your business that protects your employees and legacy while maximising sale value.
Get in touch today to find out more about our exit planning services.