Why have a business exit strategy?

business exit strategyAs is often the case when entering into a business, the complete focus is on setting up, operating and growing the business. What is easy to overlook is the all-important business exit strategy.

An exit strategy is an essential component to a well-designed business plan, as without one you could be left with a business that you can't sell or is unsuitable to hand over when the time comes to move on. It may be surprising to note that a high percentage of businesses listed for sale do not sell for one reason or another, and owners simply close the doors. Prudent business owners recognise early the importance of planning for their eventual exit from the business and for maximising the price they will receive. Clear goals and objectives need to be determined early in the piece and options considered. Options include when to exit and how this will be achieved. It could be by way of an outright sale, a progressive buyout, a merger or bringing a family member onboard. However, business owners should never automatically assume that children or family members will want to work in the business or have the skills necessary to run the business and keep it afloat.

Whatever the situation, it is imperative to begin considering the future of your business today. Many business owners are lulled into the belief that they can wait until much later to start preparing their business for sale. Unfortunately, as the years pass by, opportunities to enhance their business' value and position it for the maximum selling price can be missed.

Business exit strategies are not set in concrete; they are flexible as circumstances can change. A good rule of thumb is to ensure your business is always in saleable shape so that when the unforeseen occurs, such as illness or accident, a good sale price can still be realised. Key factors in delivering your exit strategy are likely to include well developed business systems that manage your processes, workflow, and productivity; and help reduce people dependency - especially on you. Anything that a business owner can do to make the business less dependent on them through the transfer of key skills or relationships to someone else in the company is crucial in achieving a business sale. Any buyer is going to want to know that they can handle the business themselves. Anything that can be done by way of training employees or documenting procedures to allow a new owner to run the business well is going to be of great value.

Arguably the most important component of your exit strategy is showing a healthy cashflow. Buyers buy on facts and good information is essential. Buyers look at that all-important bottom line, the business' potential and if it has a good upside. Good systems and financial records from well thought out strategies over a number of years, will attract better quality buyers, giving you a greater return when it comes time to exit your business. Usually in the event of a quick sale, the business owner is unlikely to realise the full market value of the business but with proper planning, even quick sales can be fruitful for the business owner.

Owning and operating a business can become all-consuming and it is important to take time out for family and holidays, and to have the time and energy left over to explore and develop other interests. So when the time comes to exit your business you will make the transition with ease, having formed other interests. Whatever your exit strategy, try and determine the needs particular to you and your business. Some business exit strategies take more time and thought than others. Keep in mind that the most successful exit strategy is the one that delivers what you want, and will provide you with your best return at the end of the day. Seldom does this happen by chance.

For more information on Business Exit Strategies or Selling a Business please Contact Us.

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By Richard O'Brien - nzbizbuysell
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