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What is a business exit strategy and why does it matter?

If you’re a business owner, executive, manager, or employee, then a business exit strategy can be valuable and important for a variety of reasons. (And you don’t need to be thinking about selling your business right now for a business exit strategy to be a good idea.)

Let’s break down what a business exit strategy is, why it matters, and what steps you need to take to get one started.

What is a business exit strategy?

Business exit strategies, also known as business exit plans, are created by investors, and they detail how they plan to divest an investment. This could involve selling all or a portion of the business, dealing with potential management buyouts, liquidating your business, or transferring your business to a family member.

Frequently, the investor is the business owner who is deciding how they eventually want to “exit” the company they built. The business exit strategy is a plan, and it’s typically long-term in nature. It should be built years before the business owner wants to sell (or leave his or her business).

Why is it important to create a business exit strategy?

An exit strategy formulated early on can serve as a guide. This guide will dictate what decisions should be made to ensure all financial, personal, and business goals are met before the exit occurs.

The sooner the business exit strategy is created, the better. This is because the exit strategy begins with an assessment of the owner’s personal and business assets and what they want and/or need when they decide to sell.

Afterward, this plan translates into actions that must be taken to optimize the value of their business by the planned exit date. It’s important to keep in mind that the appropriate actions may take two or even three years to come to fruition.

Developing a business exit strategy: the main steps involved

When you decide it’s time to create a business exit plan, then you’ll need to take the time to organize and prepare. This can take some time and will likely require outside assistance from fractional CFOs and business consultants.

Here are the main steps involved in business exit planning:

  • Personal and Business Finances Inventory: What financial assets do you own in both areas of your life?
  • Determining the Exit Strategy you Want to Pursue: Depending on the reason you want to exit, this could include selling or transferring to family or current employees (management buyout), selling to a third party, or bringing someone else on to manage the ongoing business until you are ready to completely exit the business.
  • Consult with a Business Appraisal/Valuation Expert: This will give you a good sense of the current value of your business and what you may want to “shore up” to receive a higher valuation.
  • Develop a Business Optimization Plan: Based on the valuation and recommendations you receive, determine your action plan to optimize the value of your business. This may involve hiring experts in functional areas such as operations, finance, human resources, etc.
  • Evaluate Potential Business Brokers/Investment Bankers: Selling or liquidating your business requires expert help to ensure you get the highest value for your company. The funds invested in working with an expert in this area will be well worth the cost.

Keep Reading: How do you get a business appraised?

What is the best exit strategy for a business?

The best exit strategy for a business depends on the size of the business, as well as the industry it belongs to.

For example, a manufacturing business is very different from a medical practice. At the same time, a small consulting business with just one or two employees is very different from a company with 20 or more employees. Standard operating procedures, internal processes, inventory, personnel, and more will vastly differ from one business to the next. All of these factors combined will determine what your business exit plan looks like.

Keep Reading: How much can I sell my business for?

How can you get help writing an exit strategy for your business?

Professional business exit professionals can help guide you through the stages of evaluating, selecting, and crafting your exit strategy and action plan. You’ll want to look for someone who has Certified Exit Planning Advisor (CEPA) credentials – which will ensure they know necessary to help you through the entire process.

Here’s what else is recommended during the planning process:

  • Act Now: The sooner you start crafting your exit plan, the better prepared you will be to optimize the value of your business and avoid any pitfalls
  • Do Your Research: Make sure you work with experts in exit strategy and planning
  • Compare Expected Results to Cost: Consider the value provided in the exit planning and additional estimated value from action plans executed to the cost of the expert advice

Looking for help with your business exit plan?

At New Life CFO, we have experts ready and waiting to help you organize and prepare for your business exit strategy. If you’d like to learn more about how we can help, fill out our online form for a free consultation.

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