An exit strategy is a pre-prepared plan that allows you to exit your business in the best possible manner. As a business owner wanting to either liquidate your position in a financial asset or to remove yourself from an investment or responsibility and directorship.
With a number of choices to make:
· Reduce your ownership of a business
· Give up a level of control within a business
· Sell your company and or your investment in one
· Close your business due to a momentous change in your personal landscape or in market conditions
· Sell an unsuccessful company to minimise your potential losses
· Sell a successful business and maximise your exit value
· Retain interest in your business but remove yourself from daily activities
When planning what exit strategy you want to take and as with every type of business planning, time, team and money are the key essential elements.
Planning will give you more choices and more objectives and working with someone to plan your exit should open more choices.
In the period before your exit from your company, you may be able to set an improved financial position, such as increasing your personal salary, dividends, or bonus. This is of course if the company position can allow for this extra cost.
A sale of your shares to other shareholders allows you to exit easily and without further obligation.
You could consider liquidating the business assets at market value and use this money to pay off any obligations you are committed to and retain the balance for yourself.
Merge your business with another business or let another business acquire yours.
Sell the business outright to another business or entrepreneur.
Pass the business on to another family member.
A well-defined and well-executed exit strategy will help you to exit your business in the manner of your choice and usually on your timeline.
Valuing a business at exit is often seen as a difficult calculation to make – a business may only be worth what a buyer will pay for it, or you may feel that an industry
multiple of your EBITDA may be appropriate.
What is certain is that if the business is weak in certain areas either your potential buyer will find and try to exploit this once they have completed their due diligence process, or they will pick this up when speaking to staff or people with knowledge of the business.
After all if you have made a job for yourself within your business and the business does not function without you why would anyone pay full price with a perceived level of risk. Knowing if you are in this position and what to do about it is again in the qualification and planning of your exit strategy. There are some simple indications of having built yourself a job in your business, which many business owners do, such as – the hours you work – the time you can take away from the business without problems – your remuneration in comparison to your effort – the decision-making process being with you for all major decisions and your relationships with clients and suppliers. If you tick all or most of these boxes, then in reality it is likely that you have built yourself that job which risks your exit value.
To address this situation and minimise the opportunity for a prospective buyer if the business may take some time but most certainly will take some planning to address each situation.
Whilst this is a common position it is overcome with the correct planning and time given to it. In addition, maximising bottom-line results is key to building value and again many business owners who are too busy doing their job are likely to have missed opportunities to make changes to improve results. These improvements are often in the power of several minor change actions which collectively can make a substantial difference. A review of your business financials can reveal these and a plan to put change into action over a period would be a great pre-sale investment.
Other key considerations in the “What If” exit plan include:
Ill health and family issues all of which in their various forms can adversely affect business focus and efficiency in running the business. Consideration and planning can minimise your risk.
Economic recession – these days the risk is clear and mostly outside of the business owners’ control but again a detailed planning session will highlight issues and risks which can then be addressed in the best way.
An unexpected approach from another business or entrepreneur who makes looking to acquire your business may catch you at a weak point especially if you have not planned your exit fully and have your business in the best position.
Your strategic direction will take your exit plan into account and the decisions you make will and should be influenced by this. Decisions made around your premises, your staff, your cash position, your assets and liabilities position, your market conditions, your competitive landscape, your health, your age, your family and your personal goals and objectives are all considerations you should take into account.
We see so many business owners who have a “kind of plan” in their heads without any real substance and do not particularly have time on their side is very commonplace. Think for a moment the average life span is say 80, work back from there 5 to 7 years to early 70’s with a potential retirement age of 67 then the maths is easy 5 to 8 years to enjoy the next chapter in your life. Would it not be a clever idea to start planning now giving you sufficient time to get things right after all the best-laid plans can and do get changed. But to not have a defined plan and your options to hand is only doing yourself an injustice – surely?
If you would like to talk to us about your exit strategy, then book an appointment now –
Tel 01235 886222 – email info@actbusinessconsultants – www.actbusinessconsultants.co.uk