An exit plan allows you to prepare your business before you sell or pass it down and ensures that it’s in the best possible position financially and operationally. Planning an exit strategy is key as a business owner as it opens up more options when the time comes to leave.
It’s advisable to start thinking about your potential routes away from the company at the beginning of your business journey, whether you’ve bought an existing enterprise or have set up a brand new business.
So what exactly is an exit plan and why is it so important?
What is an exit plan?
An exit plan is a document that sets out what you need to do to maximise your business’s potential and ultimately its market value. It involves ensuring that the business can run smoothly without you and isn’t reliant on just one key customer or supplier for success.
Exit planning helps you define and reach strategic goals at various stages of business and provides a roadmap from beginning to end so that you can prepare the business well in advance of your exit.
Why is an exit strategy so important for business owners?
Here are just a few reasons why exit planning is important:
It opens up future business opportunities or retirement plans
Without a sale-ready business, you won’t be in a position to capitalise on any new commercial opportunities that come your way. Your retained profits won’t be maximised, which also means you may not be able to retire as planned.
You gain control
By following your exit plan and building up your business over time you gain more control of your personal financial future. A carefully considered exit strategy highlights the short-term and longer-term goals you need to reach to build value and engage future investors or buyers.
You can determine the best types of financing
Your business objectives help you choose the most suitable forms of funding so your credit rating is always positive and the business thrives.
Staves off financial decline
Without an exit strategy, the business may need to be sold quickly if it suffers a financial decline. Exit planning helps to keep business finances stable and staves off insolvency, opening up more options.
How to develop an exit plan for your business
Important considerations when developing your exit plan include:
How you’ll exit
Options include but aren’t limited to, selling the business, passing it down to a family member, a merger or acquisition, and a management takeover. It’s also advisable to develop a ‘plan B’ in terms of the way you exit in case your main option doesn’t work.
Objectives from exiting
Developing your exit strategy helps you decide on your main business objectives. This may be income-related to fund your retirement, for example, or the objective might be to improve the business and build a family inheritance.
Do you need to make any changes?
For the business to run without you, it might be necessary to hire more staff or retrain existing employees so they can take on more responsibility.
How can you make the business autonomous?
Autonomy is a key issue when building value in a business, and essential to be able to sell it or pass it down smoothly. This can typically be achieved using technology and automating or streamlining your business systems.
Start exit planning as early as possible
Making strategic changes to a business takes time, which is why it’s important to start planning early, preferably several years or more before you think you’ll want to leave the business.
In fact, it’s never too early to start thinking about your exit strategy. This is a dynamic plan that needs reviewing regularly, though, so any changes in the business or your industry are promptly addressed.
About the author – Jon Munnery is an insolvency and company restructuring expert at UK Liquidators, a leading provider of company liquidation services to both solvent and insolvent limited companies.
