Do You Need An Exit Plan For Your Small Business?
You are so caught up scaling and growing your business, that the last thing on your mind is likely to be an exit plan. Even if it’s far off, you aren’t going to be the one running your business forever. That being said, exiting may be an option to explore sooner than you might imagine. For example, a competitor or aligned business could offer to buy you out at any moment.
Below we explore why you may want to create an exit plan for your small business.
What Is an Exit Plan?
An exit strategy and plan are not one-and-the-same. However, they are often crafted alongside one another. Your plan outlines what your goals are and what steps need to be taken to move you toward your exit. Your strategy defines the tactics you will utilize to realize your goals.
The most common exits include:
Transitioning to a new brand or business model
Selling to an internal investor or buyer
Selling to an external investor or buyer
Passing the business down to a family member
Shutting down your company
Combined, your plan and strategy map out the goals you want to achieve before you exit and the steps you want to take to get there. It takes into account finances, stakeholders, operations, and everything you need to complete to sell or close.
Should All Businesses Have an Exit Plan?
Yes! While it might sound like something only larger businesses need, you should create your plan approximately 5 years before you plan to exit. If you come to the difficult realization that it’s time to close, you may create and execute a plan in 12 months or less. While 5 years may sound like a long time, it provides ample time to achieve your objectives.
Paying down debt to ensure your business is more attractive for sale.
Launching essential new products or services to scale before you sell.
Preparing your internal replacement to perform your existing job duties.
When closing, strategically minimize the financial loss of closing.
How to Create Your Exit Plan and Strategy?
Creating an exit plan for your small business isn’t something you should go alone. Both should be created with the guidance of your business advisor/accountant and attorney. They won’t just curate a proven strategy, but a strategy that is compliant with industry ordinances and relevant laws.
As every business owner rapidly learns, you don’t know what you don’t know, but your business advisors and legal experts do. That being said, you may need to onboard someone who is more familiar with mergers and acquisitions, or your type of exit than your existing team.
These experts will help you answer questions including:
What are the viable pathways to exit?
What is the current valuation and what is the estimated valuation at the time of sale?
How can value be enhanced before the estimated date of sale?
What can be done to reduce income and estate taxes?
What regulatory and compliance factors need to be accounted for?
What is the amount of money you want to walk away with to support your personal objectives?
You worked hard to build your business. Work just as hard to get the most out of it when it’s time to exit!
Check back to the TEK REMEDY blog soon for addition small business tips!
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