An exit strategy is a plan for a business owner to exit the business due to some reason. The most common reasons to exit a business are, it is no longer profitable or it meets a substantial profit.
Other reasons are passing it on to the next generation or selling it to some other party. Whatever may be the reason, a business needs a proper exit strategy so that it keeps running successfully after you leave it. Here are ten tips for planning an effective exit strategy for business transition planning.
Get a valuation of your business. You need to know the valuation of your company before planning a business exit strategy. You can hire professional business evaluators to help you get a precise valuation of our company. An accurate valuation can help business owners to set expectations for the potential buyers of your company.
Decide on a future plan. Business owners need to ask themselves what they want from their exit strategy. Some people prefer simply selling their business to another party, while others may want to have some control even after selling the business to a buyer. If you are leaving a family business that you have been running for generations, you need proper succession planning.
Consider all the scenarios. While preparing an exit strategy for your business, you must consider all the best and worst possible outcomes. Once you consider all the possible outcomes, you should have contingency plans for them. For example, if your business sells for a price less than its value, what would you do? Contact professionals to understand your business and ask them to create an exit strategy best suitable for your profit goals.
Drop the products /services that depend on you. A business does not have much value if the products or services it sells depend completely on the owner. The dependence of products and services on the owner does not contribute to the value of the business. So, it is better to drop the products/ services that depend on you as a part of the exit plan for small businesses.
Reduce accounts receivable. Focus on collecting more money upfront and try to reduce the accounts receivable (AR). A slow AR is an expense for your firm and also a risk in economic uncertainty. Focus on reducing your AR to turn the negative cash flow into positive and boost the value of your business.
Sell your share. Unless you are a sole proprietor, selling your share can be a quick and efficient way to get rid of your share of the business. You are dealing with one or more known buyers who, as usual, can ensure a smooth transition and an exit strategy.
This is the right way to get out of business if you are not interested in keeping an active role and just want to make a profit and secure your financial future.
Wind your business. Liquidating is the most draconian exit strategy and involves closing the deal in full and selling all assets. Liquidating a company also has a wider impact on employees and customers, and the money you make should be used to pay off outstanding debts and reward shareholders.
It’s a quick and easy exit strategy, but it’s rarely recommended if you want to maximize the value of a company you’ve built from scratch for years.
Opt for a Buyout. Selling your stake in a management buyout or employee acquisition can ensure a smooth transition as buyers are already familiar with the day-to-day running of the company. You deliver your business to people whom you trust and whom you would like to have as a consultant or mentor in the future.
However, make sure you seek independent legal and financial advice and keep lines of communication open with existing customers who may oppose a change of address.
Sell the business. This can be the takeover by another company or the sale to the highest bidder on the open market. Competing companies can be highly motivated, and making a desirable acquisition can be an effective way to get the most profit in the shortest amount of time.
Selling in the open market is the most popular small business exit strategy template but spends some time making your business as attractive as possible to attract potential buyers.
Continue the legacy. If you intend to safeguard your legacy by keeping the company running in the family, be practical with the transfer of power and assets. Developing your successor within the family may not be practical or create friction with other family members and management. Make it clear whether you want to leave the company altogether or keep supervision in an advisory capacity.
Final Thoughts. Selling or liquidating your business requires a proper plan or strategy. Following the tips in this post can help small business owners create a company exit strategy and have a smooth transition.