An exit plan enables a business owner to liquidate or reduce his or her portion of a business, should that time in a business’s life arise. A business exit strategy describes and outlines the form that an exit transition will take.
Successful businesses will make a substantial profit when reducing or exiting a business. On the other hand, should a business experiences losses, an exit plan will enable an entrepreneur to minimize losses.
Exit plans are also used by investors (venture capitalists) to plan a cash-out of any investments they made in the business. It is important not to confuse exit strategies with trading exit strategies used in securities markets.
Why Is Exit Planning Important?
An exit strategy offers guidelines when you want to leave your business. The plan outlines the form of this transition and provides a roadmap of the process.
A business plan is a guide to your business throughout its life. A business exit plan is a guide to the conclusion of a business.
How Does A Business Exit Strategy Work?
In a perfect world, an entrepreneur will create a business exit strategy when creating their initial business plan. The exit plan chosen could be influential on how the business develops and grows throughout its lifetime.
The most common types of strategies that entrepreneurs choose include IPOs (Initial Public Offerings) and MBOs.
A management buyout (MBO) is a corporate finance transaction where the management team of an operating company acquires the business by borrowing money to buy out the current owner (s). An MBO transaction is a type of leveraged buyout (LBO) and can sometimes be referred to as a leveraged management buyout (LMBO).
A Business Exit Strategy Does Not Necessarily Mean Failure
A business exit strategy does not have to spell disaster. It is also not about failure. Instead, it is a strategic plan for business owners to exit their business after a certain period. It’s about forethought and planning well for the future of the business.
Entrepreneurs with a strategic plan in place are not less committed, they are simply putting strategies in place. Many entrepreneurs create business exit strategies at the start-up stage.
How Are Entrepreneurs Benefitting from Creating an Exit Strategy?
In an ideal world, entrepreneurs create an exit strategy in their original business plan. This should ideally take place before entrepreneurs begin to go into business. The type of exit plan put in place could and should then influence the decisions the business makes throughout its lifetime.
Entrepreneurs Choose Exit Strategies for Different Reasons
What exit strategies are entrepreneurs willing to follow?
Entrepreneurs need to decide how much control or involvement they still want to have once signing off on selling their business. They may want to give up all control or retain a portion of the business.
Do they want the company to run the same as always? Are they prepared to embrace changes, especially once new management is in place?
Strategic acquisitions relieve entrepreneurs of their ownership responsibilities. These will result in the founder giving up complete control of the business.
When it comes to exit strategies, IPOs are often viewed as the all-time solution. They offer the most prestigious of all exit strategies and offer the highest payoffs to the seller.
We view bankruptcy as being at the bottom of the rung of exit strategies. Calling in a professional to assist with the valuation of a business will help you determine what’s fair and what’s not when exiting a business. This is key to putting a watertight business exit strategy in place. The financials of the business will be scrutinized to determine a fair price, and transition managers could also help sellers get every penny they’re owed while smoothly transitioning them into their business’s next phase.
7 Steps To Consider For A Successful Business Strategy
Closing or liquidating a business could feel overwhelming. Planning an excellent, watertight exit strategy will give entrepreneurs peace of mind, and here is how you can begin.
- Entrepreneurs planning to sign over their company should prepare an in-depth account. This should be both your business and personal finances.
- What are the best options for your exit plan? Make a decision. There are several exit strategies entrepreneurs can choose from.
- This is the best time to speak to your investors and stakeholders. Your intent on exiting the business and creating a repayment strategy should be communicated so that everyone is on the same page.
- Appoint your business’s new leader. Once the process of an exit plan begins, it might be a good time to shift responsibilities to the new leader.
- Inform your workers of your plans; they deserve to know. Sharing the news and answering pertinent questions will give employees confidence in the coming transition, and provide a sense of security for the changes about to take place.
- Your customers also deserve to know there are changes happening in the business. Make your intentions public. It might be a smart strategy to introduce new owners or managers to existing clients.
- Offer alternative options to your customers if your business is shutting its doors permanently.
Some Key Takeaways
- An exit strategy is a strategic plan enabling entrepreneurs to reduce their stakes in companies they own. It can also help them avoid losing money on investments when a business fails.
- Although an exit strategy is a plan that an owner or founder of a business has put in place to sell their company, it also refers to selling shares. Shares are usually sold to other investors or companies. The term “exit” merely refers to selling one’s interest in a company.
- IPOs, management buyouts, and strategic acquisitions are all common exit strategies that business owners pursue.
- When the business is profitable, entrepreneurs cut their stakes or sign out of the business while making a profit.
- When the business is struggling, an exit strategy or exit plan will permit the entrepreneur to walk away with minimal losses.
Saddock Is Here to Guide You Through Your Business Exit Plan
Saddock Advisory is here to guide you through your business exit plan from start to finish. We offer pertinent advice to get you through the planning and execution processes. By aligning company financials, setting an exit target, and assisting in tax implications of sales, we can help you maximize the effects of your business exit strategy.
Get in touch with us here to find out how you can benefit from the expertise of a business exit advisor from our team of professionals.