What is Your Business Exit Strategy
If you have a business and you intend to retire or sell it at some point in your lifetime, you need to plan your exit strategy early on. Even if you plan to exit decades into the future, what you do now will set you and your business up for long-term success and avoid large challenges for a sale or transition later.
Planning Your Business Exit Strategy
Your business exit strategy options will depend on your company and your personal needs and goals. There are, however, several critical elements in every exit strategy. Here are some basic questions you will need to answer when you begin this process.
A business exit strategy is a written plan for the transition of business ownership to family members, another owner, or investors. It helps align an owner’s business, financial, and personal goals and also acts as a guide for decision making. It will be continuously revised over time as the business scales, so it is never a one-and-done document.
Every business owner needs to carefully consider their own objectives and goals for an exit. These will vary greatly from person to person and may involve price, family, legacy or other considerations. Determining what is important will help simplify the decision-making process at every stage.
Who will the next owner be? If the owner plans to transfer the business to a family member, they will need to be prepared for their future leadership roles. This can involve extensive training or education and may take years. Developing the management team for a new owner is a different process but also vital.
The earlier the owner begins to plan, the higher the chances of success. Sometimes personal circumstances or market conditions require a shift in exit timing. Planning and addressing weaknesses in the business early on gives owners more leeway for making these kinds of changes later, if necessary.
An exit plan begins with a proper understanding of the business’s value. This requires a business valuation compiled by a valuation professional that determines the economic value of the business, including its tangible and intangible assets. This valuation will also uncover any weaknesses in the business that need to be addressed.
The owner will then have specific work to do, whether that’s accessing necessary capital for growth, developing management, acquiring skilled labor, diversifying the customer base or eliminating owner dependency.
Benefits of Exit Planning
Making an exit plan eliminates guesswork and minimizes emotional decision making. It’s also extremely useful for keeping track of the company’s finances and growth. An exit plan provides owners with a better idea of the impact the transition will have on their own personal wealth upon exit and how to plan to mitigate taxation upon a sale. It can also help them to establish post-ownership goals so that retirement will be enjoyable and not a shock to the system either personally or financially.
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About the Author
Vincent B. Mastrovito, CEPA, is a certified exit planning advisor as well as the founder and president of Prometis Partners. He may be reached at 616- 622-3070 or firstname.lastname@example.org.
Prometis Partners is an MMA Premium Associate Member and has been an MMA member company since September 2018. Visit online: prometispartners.com.