Selling your business might not be at the top of your mind. But the fact is, you will not own and operate your business forever, and at some point you will most likely hand over the reins to someone else through a transition of ownership.
Creating an exit strategy and exit plan is the best way to prepare you and your business for an exit. Ideally, you should prepare for the exit of your business years before selling it.
Learn how to make the ideal exit strategy and exit plan and why it’s so important to prepare your sale years before exiting.
Exit strategy is a plan for the transfer of ownership of your privately owned company to another party. A sale or transfer of the company often means that you as the owner also leave the company, but this is not always the case.
Structuring and planning the entire journey towards the sale is often known as an exit plan. The exit plan is a multi-year process of planning your exit based on personal and financial goals as well as strategies for increasing the value of your business.
The words “exit strategy” and “exit plan” are used interchangeably in this article, but they sometimes have slightly different connotations. An exit strategy might primarily address the structure and plan for the specific transition of ownership of a company (e.g. through acquisition, IPO, family transfer, etc.), while an exit plan is the entire multi-year process of actually getting ready for the exit as described above.
An exit plan should be made years before a potential sale. It's difficult to foresee exactly what will happen in the future, but by having an exit strategy, you will feel more confident about your business and its ability to succeed.
Your exit strategy should cover at least some of the following four points:
It is important to prepare well to increase your chances of selling your business at the right price, at the right time, and on your terms.
There are a lot of valid and important reasons why you need an exit strategy. Even though you're not planning to sell your business yet, you will be well prepared for unexpected times and circumstances, and the exit strategy will help you provide focus on your goals and how to achieve them.
Your exit strategy is preparation for that day you no longer want to lead the company. In other words: An exit strategy gives you a clear roadmap for the company's future, until the day you leave it. It will ensure that you can navigate easily during turbulent times and make the right decisions that will result in a successful sale.
As a business owner, there are many benefits to putting an exit plan in place long before you plan to sell your business. Here are some of them:
At Exitplanner there are three key points that shape our work with exit strategies, and why we believe they are so important.
You will gain a better understanding of the company's current value and knowledge of what efforts are needed to significantly increase the value in the long run.
Having a defined project plan and defining responsibilities gives you extra stability throughout the process of a business exit. A well-crafted exit strategy will give you a clear roadmap that you can follow step by step. This will make your company and yourself more successful.
The sooner you develop an exit plan for your business, the less stressful life becomes down the line. An exit strategy will not only provide stability for you and your family, but also give them peace of mind knowing that you've thought ahead.
It can be difficult for owners to see the value of an exit plan when things are going well, but having an exit strategy in place will give you security and peace of mind should you ever need it.
If you are considering starting another business, it's best to think about your exit strategy now so that no matter what happens, you're prepared.
You owe it to yourself and those who depend on you financially to do everything possible to secure their future as well as yours!
First of all, it is crucial to set your goals for the exit. Selling your business is a lot about you, so it is important to have a clear idea of your personal goals – both in terms of financial goals and what is important to you about your business regarding company culture, employees and location. Setting personal goals is important for managing expectations.
Analyzing the business itself through a series of questions and discussions reveals both the good and bad aspects of your business. Based on this analysis, Exitplanner automatically provides a tailored exit plan that involves setting targets for future earnings and growth, positioning on the market, value-creating efforts, as well as development of employees and management structure.
If you need a confidential conversation about your situation and your business, please don’t hesitate to contact one of our exit strategy advisors.
Before you can lay out a clear exit strategy for how you want to exit your business, you should start by asking questions regarding:
It can be difficult to make sense of some of these questions, especially if you are not planning to sell in the near future. But it is a good idea to reflect on where your business is at the moment and where you want it to go before selling it.
Overall, there are two action plans you should prepare in order to create a successful exit:
A good exit strategy includes an action plan on how you will achieve your personal goals and expectations. There is a life on the other side of the sale, and you should reflect on what standard of living you want the sale to provide. Do you want the sale to provide capital to start your next big project? Or do you want the sale to allow a comfortable retirement?
Whatever your dreams are, you should ensure you have a plan for how the sale will realize those dreams. Remember to not only think about your personal finances when setting your goals, but consider when and under what conditions you want to leave the business as well.
As well as considering the finances, timing and terms of your own exit, you should also consider what you want to happen to your business when you are not running it anymore.
The good action plan addresses how management of the company will be passed on to the new owner. A functional and stable internal structure ultimately increases the value of the business and you are likely to get a better sale price if you pass on a stable foundation.
Besides the two points above, you also want to weigh the pros and cons in selling to a stranger vs. someone you know. If you want your business to live on, then the best exit strategy can sometimes be to sell to a buyer you know, e.g. someone within the company, within the industry or perhaps within your family. This can ensure that the legacy you have built will live on. However, there are also potential downsides to selling to someone you know. For example, you might be tempted to compromise on the value and sell your business for less than what it is actually worth.
There are several ways to make an exit strategy and an exit plan. At Exitplanner we’ve been working with exit planning and exit strategies for many years, and when we help you with exit planning, we follow four steps:
In order to implement a successful exit strategy, we establish your time frame, financial demands, possible buyer, and any personal requests related to the sale of your company. Based on your current lifestyle, an algorithm will calculate how much you (at least) need to sell your company for. No matter if you plan to retire or start a new venture, you will know how much you need to sell your company for, to support the lifestyle you want after the exit.
The gap analysis provides an overview of the current status and health of your company through a series of questions and discussions. The gap analysis is the foundation for developing a tailored exit plan.
Various methods exist for determining a company's value, and they all depend on both internal and external factors. We provide an initial, automated valuation (sometimes referred to as an opinion of value) which can be validated by one of our external partners. A business valuation is crucial when planning a business exit strategy, because it shows you what value you need to create with your exit plan to achieve your financial goals.
Read more about business valuation.
Based on your goals, gap analysis and business valuation, we develop an exit plan, so you will know what needs to be accomplished before exiting the business. The plan will serve as a roadmap and make it easy to prioritize the different tasks associated with your exit strategy and make the right choices for your business.
Furthermore, we offer a network of brokers that have been approved by Exitplanner, and we will only recommend the brokers that match your business and industry. That way you will be able to increase the probability to sell by engaging with a broker that matches your company.
You have the option to get guidance from an Exit coach throughout the whole process.
It might seem a bit odd to make an exit plan for a startup business but it’s often a good idea to think ahead and consider a future sale. There are many reasons why you may want or need to sell your business in the future, and it is always better if you plan ahead. Doing so can help you make a clean break, save money in taxes, and ensure the company's continuity.
Here are some tips to consider for a startup which could also be part of an exit strategy:
Establishing a timeline and target sale price are integral parts of an effective exit strategy as well as considering who you want as buyers, and think about what they would need in order to purchase your business.
It can be difficult to determine what type of exit strategy will work best for you. We offer a tailored exit strategy for your business as well as guidance from an exit coach.
The goals you set for your business should be realistic, achievable and measurable. With clear goals, you can more easily see what you need to do and how much time you need before you are ready to sell your business, and setting goals is also important for considering the life you want after selling your business.
When setting goals for your life after the exit of your business, there are many things to consider. How do you want to spend your time after the exit? Are you planning on starting up a new venture, or do you want to retire? As mentioned before: Exit planning is all about you!
If you are planning to retire or become economically independent from selling your business, it is important to calculate your so-called freedom point. The freedom point is the sufficient level of income that would allow you the financial freedom to live your life the way you want to.
As part of Exitplanner’s goal setting, we calculate what you need to sell your business for, to maintain the same standard of living as now, based on your current age and the life you wish to live after the sale.
It can be difficult to know when it is the right time to sell your business. At Exitplanner we provide expertise to businesses at all stages of their exit journey. Our exit strategies combine our knowledge and experience to help you with a successful exit.
We daily help all types of business owners prepare their business for the big exit. Let's have a confidential and informal conversation about your situation.