When we start out, we’re focussed on building a successful, thriving business. Whether that means a multi-million dollar annual turnover and hundreds of employees, or you’re happy being your own boss, setting your own schedule, we all want our business to succeed in it’s own ways.
But what happens when you want out?
You could be approaching retirement age. It could be an unexpected life event. Or maybe you’ve just had enough and want to try something new. Whatever the reason, having an exit strategy in place right from the start can protect you, your family and any business partners or investors.
So, what’s a good business exit strategy and why should you include this in your business plan?
A business exit strategy is a plan for winding up your involvement in your business. The strategy, or plan, details how a business owner intends to get out of the business and how this will look.
The sort of exit strategy you put in place will depend on the type of business you own, the scale and who else is involved. The exit plan for a sole trader will be very different to the strategy for a large company that employs 100 people.
You might be thinking “isn’t an exit strategy the same as succession planning?” And while the answer is no, you’ll see that some exit strategies do drift into succession planning territory.
For more information you can read our blog on Effective Succession Planning but for now, let’s take a look at the main differences between the two.
Succession planning is about people. It’s transferring the power and leadership of your business to another party. Who will take over when you can’t, or don’t want to, run your business anymore?
Succession planning is making sure whoever takes over understands the business. Ideally, the business should move from one party to another almost seamlessly whether this is your business partner or a third party. It could also be passing the torch to the next generation of your family.
For the ultimate in succession planning, you need look no further than the British Royal Family. The entire world knows what will happen once The Queen’s reign comes to an end.
An exit strategy on the other hand is all about transferring the wealth of your business into your bank account. It’s about taking the money and running. This may involve winding up the business or having it continue, just without you at the helm.
In 2007, American rapper 50 Cent sold Glacéau Vitamin Water, a company he’d invested in and heavily promoted to Coca Cola for $4.1 billion. This is an excellent exit strategy because he was able to remove himself of the time, pressure and responsibilities of the business but also be rewarded for the effort of building a successful business. (He later squandered the money, but that’s a whole other story.)
We should also point out that a business exit strategy may or may not involve succession planning.
A common mistake people make is believing you need to be at the stage of exiting your business to start thinking about exit strategies. We're here to say that's false! The ideal scenario is that you already have an exit strategy in place so that you’re prepared for the unpredictable as well as the inevitable. But if you don’t have an exit strategy worked out as yet, here’s a few ways you can make it happen.
As we’ve already discussed, family succession involves passing the business torch to the next generation upon retirement (which is technically an exit strategy) or when you pass away. Some may argue dying is an exit strategy. And it is. It’s just not a particularly good business model.
This is when you simply shut the doors and sell all business assets. This is a good, quick option for sole traders and owners whose business relies solely on them and what they do.
However, it’s worth remembering that first dibs on liquidated assets goes to creditors, not investors. It also means your business dissolves – concept, reputation, goodwill and customers. All gone.
If your business is successful, you may not want to wrap it up, you may just want to get out. This way, your business lives to see another day. You may want to sell to your business partner, current investors or employees. These people are already familiar with and invested in the business making it a good option.
This is a popular option for many small businesses. When you’re ready to move on, you just put the business up for sale at a certain price. You sell, pocket the dollars and walk away. Almost the opposite of liquidation, your business concept, reputation, goodwill and customers continue – just under the ownership of someone else.
Another business buys your business and they merge. A merger is different to a sale because you can still choose to be part of the business, just in a different capacity. You also have the opportunity to walk away. It’s worth noting that investors love a good business merger as it increases the value of your business.
Acquisitions also mean you have the chance to negotiate the sale price of your business.
You can sell it and walk away, negotiate to stay through the acquisition process or stay for a specified amount of time. Your knowledge and skills are in effect monetised, making this ‘one foot in, one foot out’ exit strategy appealing if you’re ready to move on but just not quite ready to let go completely.
The best exit strategy is the one that works best for you and your business goals. When setting up your exit strategy, remember it’s a flexible, moving thing. It can be updated and reworked as your business grows. The strategy you began with doesn’t have to be the strategy you use when the time comes to move on.
The important thing is to have some kind of an exit strategy in place.
You can read more about how to develop an exit strategy and succession planning, and some Must Do Now things that will help you start planning today for life after business in our free eBook Your Money, Your Choice – Create Progress.