Using Exit Planning to Prepare a Roadmap for Leaving Your Business on Your Terms
While 80% of business owners plan on leaving their businesses in the next year, only 20% of them have a plan for doing so. An exit plan is important because it ensures the owners get a great return for everything they have invested and leave the business in the right hands. All business owners leave their business eventually, and this article will help make the process go smoothly, whether you intend on doing so soon or in ten years.
Types of Business Exits
There are several styles of business exits. The most common is a sale to an interested party, often a bigger competitor. This option typically has a much larger return on investment than others. It also allows a business owner to exit gracefully, efficiently, and quickly. This is known as an acquisition, but a business can also merge with another. Here, two businesses combine to create a single legal entity.
The other type of exit is an internal transfer. An owner can transfer the business to a family member or key employee. This option is optimal for owners who want to keep it in the family or want someone who already understands it to take over.
Lastly, a business owner can liquidate the business. Doing so entails selling all assets or closing it and then selling the assets. Both options should be the last resort because owners who use them typically lose a lot of money.
Planning an Exit
The first step in planning an exit is defining your goals. Why do you want to leave the business, and what do you want to happen to it? You might be leaving due to financial needs, a desired lifestyle, or for peace of mind and might want it inherited by your child.
The second is assessing the exit timeframe. Ideally, start planning your exit about two years before your intended leave date. However, this time frame can be shorter if you want to exit sooner or sell the business quickly.
Also read: How to Plan For Life After You Sell Your Business
Assess the Business
Every reputable investor or buyer will assess your business when doing due diligence. You should assess its current market position, growth potential, and financial health, especially if you are considering selling it. Doing this is also crucial for helping prepare the person who takes over.
Providing this information to the next person in line is also crucial if they would like to attract investors. A global family office like Parabellum Investments, which invests in global businesses, will want to see this information, so make it easier for your successor by compiling it for them.
Your assessment should also show whether the business has any vulnerabilities or weaknesses that could affect your exit.
Prepare Your Exit
With everything in place and the business in the best position, it is time to hand everything over to your successor or buyer. Give them all the documents, intellectual property, and information they need to take over. Also, make yourself available for a few months to answer any questions they may have about running the business.
Having a business exit plan is crucial for all business owners because it makes it easier for them to transition to the next phase of their lives, whether that is retirement or pursuing other ventures. An exit plan can also help you take control of your entrepreneurship journey when you feel it is time for something new.