Establishing an exit plan early in the life of your business is crucial if you are to extract the highest value from your investment of time and money.
Michael Wright, a Regional Partner at Business Partnership, believes a good exit plan will allow entrepreneurs to secure a high return on sales, whether the business is meant to provide an income until retirement or you intend to sell your company sooner rather than later. He gives his advice on why it is important to have an exit plan and the risks to your business if you fail to produce one.
Most business owners do not understand the real value of an exit strategy and will often wait until something happens, or they want to sell their company before creating a plan. However, an exit plan is invaluable if you want to be in control of your future and extract the highest amount of money from your business’s sale. So, here are the top ten reasons why you should start working on that exit strategy sooner rather than later.
1. It presents you with a clear vision of the future
Having an exit strategy in place will allow you to plan for your business’s future, help establish your goals, and create strategies for achieving them. For example, it will enable you to be in control of hiring the person who will come in and take over from you. You also have the foresight to know when to hire full-time employees or seek out freelancers.
2. It will help identify mediocre offers
Put yourself in a buyer’s position for a minute. You never bid higher than the estimated price of something unless you have to. As a seller, having an exit strategy will help you evaluate whether the presented proposal is good enough for your business.
3. You will understand the value of your business
An exit plan will help you gauge what your business is actually worth. Not the back-of-the-envelope guesstimate, but what you could potentially receive if you decided to sell. It will give you a thorough evaluation of your company’s financial position, intangible assets, potential buyers, and the respective market conditions will help you determine the value of your business.
4. You will identify the time for selling
The perfect time to sell is typically when your business is doing well; the financials are trending upwards, sales are booming, the team is strong and demand is high. However, with the current economic uncertainty, this is hard to predict. An exit strategy will help you identify a time to sell your business. With a definite period of operation in mind, you will be able to focus on developing the business and preparing it for sale.
5. A business with an exit plan is more attractive to buyers
Having an exit strategy is a sign of fiscal foresight and responsibility that makes your business more attractive to potential buyers. It shows you have set clear visions and goals for your company and you have dedicated your time and resources to ensure you achieve those goals. An exit plan also tells buyers that you are committed to selling the business and will not change your mind during transactions.
6. You will be psychologically prepared to leave
When you run a business, it is often your world, and it can be hard to let go of something you created. Therefore, it is understandable if you are having second thoughts about leaving. However, an exit strategy will help you prepare for departure by reminding you that you have achieved everything you set out to do.
7. You will take advantage of a strong market
Whilst we are currently in a buyer’s market due to the knock-on effects of the pandemic, an exit plan will help you pivot and adjust when you sell your company to achieve the best results. When the time comes, you will be well placed to exploit a strong seller’s market and receive the maximum offer for your business.
8. An exit plan provides the necessary paperwork for an exit
Exiting your business can be tedious, time-consuming, and expensive, as all the paperwork must be done from scratch. However, with a good exit plan, you will have completed all the proper documents and prepared yourself for the admin required to sell your business.
9. It prepares you for negotiations
Your exit plan should consist of how much your business is worth and reasons why it is and will continue to be profitable. With this information present, you can negotiate and convince the buyers that they will yield high returns from your small business.
10. It gives you control after selling
Whether you are leaving your business to start a new venture or looking to retire, the whole point of preparing for your exit is to give you the time to plan for life after the sale. Having an exit strategy in place will allow you the best opportunity to exit your business with the maximum value. So, think of an exit strategy as a blueprint for your future. With it, you can set goals for your business and plan ways to achieve them.