Developing a Strong Exit Strategy: Preparing for Business Succession

If you ask anyone who’s had to go through the process of selling a business or removing themselves from a business, they will tell you that the entire process is somewhat complex. It can be time-consuming and stressful, and this is only amplified by not having a strong exit strategy in place. When you’re starting, buying or growing a business, you’re unlikely to think about selling it or moving on. But, having a strong exit strategy in place from the very beginning is important. It’s not something to leave until the last minute, when the time comes for you to pack your bags and move on.

Why It’s Important to Have a Strong Exit Strategy

• It Gives You Something to Aim For – There’s a lot that goes into exiting a business, but having a strategy in place gives you something to work towards and aim for. It will help you to determine what a successful exit looks like to you, and it will give you a roadmap to follow along the way. There are various aspects of exiting a business, but an exit strategy gives you stepping stones and guidance, ensuring that every stage is complete in the timeframe you had in mind.

• It Boosts Business Value – When you have a clear idea of what the future holds for your business, you give its value a big boost. If you don’t have an exit strategy, you’re likely going to be working on the baseline value, which often means underestimating what it’s really capable of. When you have a detailed exit strategy, outlining your end goal, the business is instantly worth more to others. Potential investors and buyers are going to be looking for a business that can function well without your involvement, and an exit strategy shows them that this is the case.

• It Helps You to Make Informed Decisions – An exit strategy is a plan of how you’re going to tackle leaving your business and when that time is likely to be. You’re bound to have put a lot of time, effort and resources into ensuring your business is a success, and it’s easy to get caught up in wanting more, losing sight of what your endgame is. With an exit strategy, you can make informed decisions with this in mind.

• It Allows Exit Adjustments – There’s no knowing what exactly will lead to you exiting your business, but a comprehensive strategy gives you something to work from. You might decide to sell your business and buy another, or a sudden change in your personal circumstances might mean that you’re no longer able to continue playing a key role. Regardless of what happens, it’s a lot easier to adjust an existing exit strategy than to start one from scratch with very little notice.

Voluntary Exit Strategies vs. Involuntary Exit Strategies

You can leave a business voluntarily or involuntarily, and you need to be prepared for both scenarios. This means developing two strong exit strategies, so you have a clear plan in place for whatever comes your way.

Voluntary Exit Strategy

You’ll know a lot of the finer details of a voluntary exit strategy, such as when you want to leave. You might decide to give yourself a certain amount of years before moving on, or hitting a specific revenue milestone might be what you’re aiming for. You’ll also know whether you want someone brand new to take over, if you’d rather than things over to a family member or if someone within the business is lined up for succession. You’ll also know how much money you’ll want to walk away from the business with, and whether you’re going to want a lump sum payment, monthly payments or a share of the monthly profits.

Involuntary Exit Strategy

A lot more is ‘up in the air’ with an involuntary exit strategy, as it’s not a departure that you’ve been planning on or expecting. There’s no telling when things will change in business, and you need to be prepared for what to do if you’re suddenly faced with a succession that you weren’t expecting.

There are a number of reasons for an involuntary exit, and it doesn’t always mean that you’ve pushed out against your will. For example, you might become ill and unable to work in the same way that you have been, and it’s best for the business if someone else takes over. If this happens, having someone else trained and ready to go is key. You might feel yourself burning out and know that it’s not sustainable to continue on. If this happens, you’ll need to know whether to hand everything over to a successor, to stay involved but in a lesser capacity, or sell the business entirely.

Regardless of whether you have an involuntary or voluntary exit, having a plan in place is vital. You’re the person who knows the most about the business, and you can’t expect to simply walk away and leave everything else to figure things out. If you sell a business, you can’t expect the person buying it to know the ins and outs of everything. This is why it’s important to train people up as successors, ensuring they are ready to run the business on a day-to-day basis. Potential buyers are going to be more interested in buying your business if they know its success isn’t solely reliant on you being present.

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