Planning for Exit: 5 Reasons Why Smart Business Owners Do It Early

In the early stages of a small business, the owner is usually focused on its growth and profitability. Making an exit plan for the business is most likely not included in his or her long list of things to do. 

So, this article aims to remind business owners, who have yet to begin planning for their business’s exit, that now is the right time to create one. 

What is a business exit plan?  

An exit plan is a comprehensive document that defines a business owner’s goals for leaving the business and the strategies needed to achieve those goals. The general goal is to ensure that after leaving the business, the personal and financial needs of the business owner are met.

There are different kinds of exits depending on the business’s structure and size, profitability, competitors, time, and the state of the economy. 

The exit plan also includes the exit strategies or the specific steps you intend to take in order to achieve your goals when you leave the company. Some of the common exit strategies include mergers and acquisition, management buy-out or employee ownership and business sale or shut down.

The exit strategy could change to whatever would be favorable to the business by the time the business owner wants to commence the exit, but the actual exiting can only achieve desirable results if a strategic plan to do it has been established beforehand.

Reasons why smart business owners plan for exit

The following are some of the benefits that business owners can gain from creating an exit plan. 

1. It helps provides direction for the business

An exit plan is a crucial tool for guiding your business to its desired destination. It ties in closely to the business’ strategic direction which is the roadmap that the business has to follow. 

To prevent the business from taking the wrong path, the exit plan should include a regular compliance audit in relation to the overall business strategy.

2. It attracts investors or buyers  

An exit plan helps a company attract more investors for its growth or expansion. Investors are more likely to pay attention to companies whose strategy, that of the business exit included, has a clear timeline and plan. 

Investors would appreciate seeing a documented exit plan before putting their money into a business to gain a better understanding of the potential returns on their investment. 

An exit plan can also make a business more attractive to buyers. Buyers want to make sure that they are buying a company that would continue to be profitable for a foreseeable amount of time. 

This is something that the exit plan must have if a business owner is looking to exit by selling the company to a buyer. There also needs to be a documented procedure to ensure a smooth transition of the company operations to the new owners. 

3. It ensures security and business continuity

An exit plan prepares the business for unexpected events. For example, if the business owner can’t work due to a sudden severe illness or injury, a business with an exit plan can continue to operate smoothly.  

An exit plan would have organised the business for it to be able to function as if the owner is still holding the fort. A properly implemented exit plan can also help ensure business continuity on the part of the employees and the board. Knowing that the business will survive even without its owners gives its board and employees peace of mind. 

4. It maximises the value of the business

A good exit plan helps smart business owners maximise the value of the company ahead of any chosen exit strategy. It is through having a plan that you can see how to correct any negative effects of the various value reducers of the business. 

For example, if you don’t know it yet, the business owner could be the biggest exit value reducer of the business. Your company is not worth much if it can’t function smoothly without its owner. However, if the employees are trained to run the business after the owner leaves, it will not be losing its value under the new management. 

5. It allows business owners to exit on their own terms

The right exit plan allows business owners to choose how and when to leave. It can prepare almost any type of business for every positive and negative possible outcome when done right. 

The business owners can leave when it’s most advantageous for them and the business. 

Why the business owner is the best exit planner

An exit plan guides the owner to manage the business with the end goal in mind. It’s risky for business owners to leave the future of the company, once they part ways with it, to chance. 

The business founders can and should do the exit plan because they are the ones who know almost everything about the business, their real financial goals or needs and how long they want to be part of the business. 

Creating the exit plan can take time. It requires research about the industry and how the company’s performance compares with the competitors and related businesses. This is where the business owner’s insight is most critical.

Conclusion

Most business owners have an exit idea in mind but this is not good enough. The plan should be documented and shared with at least the management team, ready for implementation when the time comes.

Although some business owners have a good grasp on the kind of exit they want for their business, the challenge can come in actually preparing for and implementing it. To come up with the most appropriate exit plan, many smart business owners get the help of professional advisors and experts

 

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John Courtney is Founder and Chief Executive of BoardroomAdvisors.co which provides part-time Executive Directors (Commercial/Operations/Managing Directors), Non-Executive Directors and paid Mentors to SMEs without either a recruitment fee or a long term contract.

John is a serial entrepreneur, having founded 7 different businesses over a 40 year period, including a digital marketing agency, corporate finance and management consultancy. He has trained and worked as a strategy consultant, raised funding through Angels, VCs and crowd funding, and exited businesses via MBO, MBI and trade sale. He has been ranked #30 in CityAM’s list of UK Entrepreneurs.

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