When you start a new business, it’s easy to become so caught up in day-to-day operations that you neglect to think about what happens when—or if—you ever want to leave your company. However, any successful business owner knows that planning for the future is essential. Your exit strategy is essentially a planned escape from your company, no matter when or why that may be necessary.
Why is having an exit strategy important?
Your exit strategy is a blueprint for how you’ll leave your company behind when you’re ready. An effective exit strategy provides you with peace of mind and safeguards your business against catastrophe. A strong exit strategy allows an entrepreneur to sell their company in the future, transfer ownership gracefully, or end operations in a controlled manner. Whether you’re thinking about selling your business someday or bringing in a new partner, it’s important to have a plan in place. That way, you can make the exit as smooth as possible and have everything in order before you’re ready to leave. Having an exit strategy can also help you decide when is the right time to leave your business and what kind of exit strategy is right for you.
Know your options before deciding on an exit strategy
Before deciding on an exit strategy, you need to know what your options are. The five main exit strategies are:
- Sell to management (MBO)
- Sell to another business or investor
- Merge with another business
- Float
- Liquidation
The first 4 strategies ensure the business ‘lives on’ after you leave it whilst the last effectively ends the business.
What should be included in a business exit strategy?
Any business exit strategy should include the following:
- How much you want to sell your business for?
- What is the current market value of your company?
- What is your company’s potential and how much growth is ahead of it?
- What do you need to do to you company to maximise it’s value?
- Why you want to sell your company?
- When you want to exit your business or are you open to exiting when the perfect opportunity arises?
- How you want to exit your business.
Depending on the type of exit strategy you choose, you should have a timeline with milestones and targets to keep you focused. In particular it will force you to look at your business now and determine the steps required to maximise its exit value.
Take a look at our Business and Scale up Exit Assessor here. For just 2 minutes of your time we give you a free instant report which will highlight what you need to do to maximise your exit value.
Timing of your exit
Whilst mentioned above we want to you to especially mindful of the timing of your exit. You will need to be flexible on this as the valuation of your business will be significantly affected by ‘selling into a growth story’ where you can demonstrate:
- Recent and sustained growth.
- Further sustained growth in your projections.
- The overall growth period can be linked to a “growth story”.
Take a look at our article here for more information.
Summary
It’s important to remember that your exit strategy is a living document. As your company and life circumstances change, you may need to update your strategy. A strong exit strategy allows will enable you to exit your business on your owns terms and help you maximise value.
If you are interested in being proactive and creating an exit strategy which will help you maximise your business valuation then please contact us.