As a successful business owner, you would likely agree that it is important to plan ahead in order to grow your business, stick to your budget, and make a profit. But as we are all aware, life is uncertain, and changes can come unexpectedly. For that reason, it is equally wise to prepare an exit plan for your company.
An exit plan is a detailed strategy outlining how you intend to sell or pass on ownership of the company. Like a will, it allows you to proactively determine what happens to what you've built. Do you have family to pass it on to? Will you need to sell? When do you want to retire? An exit plan helps you answer all of these questions. More importantly, having an exit plan in place can reduce stress for everyone if you need to exit your business early due to extenuating circumstances such as health issues.
What to Consider When Exit Planning
Your goal when planning an exit strategy can depend on the condition of the business at the time when you are exiting the business. Is your goal to maximize profits for a successful business or minimize losses for a failing business? There are two strategies to consider. Each strategy has its own pros and cons and can be decided based on various circumstances such as how soon the exit needs to occur.
Internal Exit Strategies:
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- This involves selling the business to an employee, family member, or other partner.
- It is generally the quickest and smoothest way to transition the company.
- The downside with this strategy is that there can often be a lack of objectivity and bargaining.
- It can also leave a lot of money on the table and may cause issues in your personal life and relationships.
External Exit Strategies:
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- Requires correct timing in the market.
- Involves either liquidating the business and selling all of your assets, selling the business to an outside buyer, or selling privately owned stock to the public.
- Liquidating your business is generally quick and easy, but it is not nearly as profitable as other options.
- Selling your business to another business (acquisition) can be more profitable if the right buyer is found, but it isn't always easy.
- Selling can often be time consuming. An initial public offering (IPO) requires a lot of prep work and can be expensive, but can be very profitable if done correctly.
- The business must be in tip top shape. For that reason, this option is limited to a very few number of small businesses.
How Often Should You Revisit Your Exit Plan?
Once your exit plan is in place, consider reviewing it yearly as part of your year-end wrap up. It is a good time to evaluate how your business is meeting your projected goals, and to determine if there are any changes, short or long term, that may change your exit strategy outcomes. Your plan can be fluid in that you can add to it or detract from it as your business grows. It is especially critical when you get closer to your exit date to ensure the economy, market, and other factors are still supporting your vision.
Wrapping it All Up
There are a number of factors involved in creating a successful exit plan. Deciding on the type of exit plan that is best for your company and the metrics for an successful one can involve a considerable amount of time and effort. But as you have likely experienced when planning for other aspects of your business, giving a little forethought often makes your business process run smoother and can even reduce stress in your personal life. For that reason, putting time into developing a reasonable exit plan is well worth the effort.
At All In One Accounting, we take businesses from financial chaos to business clarity and beyond. Our elite team of Accountants, Controllers and CFOs are ready to help you in these uncertain times. Click here if you would like to learn about the tiered financial services, including exit planning, that All In One Accounting can provide by setting up an meeting with our team.