10 Tips to Develop a Winning Exit Strategy

23 Feb 10 Tips to Develop a Winning Exit Strategy

No one wants to plan an exit strategy. An exit strategy sounds like giving up. What’s more, the self-starter who creates a whole new business rather than to work for someone else is unlikely to feel compelled to create an exit strategy.

The truth is, though, that an exit strategy can be a triumph – or a disaster. If you want your hard work to continue after you’ve left the business, you’ll need to give your exit strategy serious time and thought. These ten tips could make the difference.

1. Be ready.

You are not always in control – especially when it comes to your exit strategy. You don’t know when the time will be right, and you may not even be around to manage the process. If you have a plan, you’ll be able to move quickly and confidently to the next stage.

2. Make a plan and write it down.

Exiting your business is a process, not an event. It can take years of planning to get it right. Most importantly, you need a written plan for everyone to follow even if you aren’t around. This ensures your business will continue to function without you.

3. Select competent, professional advisors.

You will likely sell or leave a business only once in your career. Professional advisors, on the other hand, will oversee hundreds of these transitions. Hire a team of experts to guide you through the transition, and you’ll find your exit is smooth sailing.

4. Know when to exit.

Stay flexible. Setting the right conditions is more important than an arbitrary exit date, and those conditions are not completely under your control. The businesses that sell easily are sustainable, predictable, and not based on personality. Focusing on achieving those conditions will help in the long run.

5. Understand how your business fits into your personal financial plan.

Your business may be your largest single investment, a significant chunk of your personal net worth and the key to your financial security. That’s why you need to know how much you need to gain from it in order to be financially secure. Having a realistic assessment of your needs can make this process smoother.

6. Do a realistic assessment of the value of your business.

Many sellers expect a larger selling price, something way beyond the value of their business. This is a huge impediment to selling a business. Working with a professional advisor to evaluate your business can help you avoid this trap.

7. Select your successor.

Start with the end in mind. Have more than one scenario in mind, completely planned out. Consider whether a deal with that kind of buyer will get you what you need as well as what you want. Then, manage your plan and your business to build a package that will attract that buyer.

8. Work to enhance the value of your business – now.

Why wait to fix things up if you can reap some immediate rewards? Work with your advisory team on an assessment. Not only will these changes improve your sale price, but they will also improve your profits now and make your business more attractive to a buyer.

9. Get your house in order.

Give your business some TLC, including:

• Get the right relationships- customers, suppliers, employees, and lenders.
• Make sure your company is properly financed.
• Have a “clean slate” on all legal and government matters.
• Plan your tax strategy and implement it.
• Identify redundant assets.
• Understand EBITDA (earnings before interest, taxes, depreciation and amortization).
• Get some third-party studies done (if they will help you manage all of this).

10. Prepare yourself.

Sometimes, business owners think they are ready to move on, but they have a hard time letting go. Make sure you understand why you are exiting and consider how you will spend your time in the next stage of your life. In addition, work with your buyer to ensure the deal is something both you and your buyer can live with.

To learn more about transitioning your business, contact us.

Joel Rose

With over 35 years of experience, Joel Rose helps families – and their businesses – to prepare for the future. He offers guidance and support to help his clients create estate plans and succession plans that meet the needs of the whole family. Through his extensive professional and personal experience, Joel is known for his compassion and his ability to find a creative solution to meet each family’s needs.