In 2019, Investor Watch Report stated that 48% of business owners in USA have no formal exit strategy. Moreover, 58% of small business owners have no succession plan. These statistics show that among business owners, there is no full understanding on what really goes on in a business. But isn’t it ideal that before you enter a venture, you must be prepared for any circumstances that may happen. Let’s look at what a business exit strategy is.
When you start a business, sometimes you get so caught up in managing its operations that you forget that you have to make exit plans for the future. Sometimes, your business may be doing so well that you start thinking about how successful it will be in the future, disregarding the fact that trends and market economy might go against you.
There is no path that will guarantee a 100% success rate for any business. This is the reason why every business owner should have an exit plan – including you. Successful businesses have their exit plans; this is because an exit plan is a roadmap for future success. Sometimes, an exit plan is the answer when your company has started to outgrow your knowledge, or you have developed different values or passions overtime that may contradict the operations of your business.
What is an Exit Plan?
According to Corporate Finance Institute, an exit strategy is “the plan for the transition of business ownership either to another company or investors”. Exit strategies should be informed and deliberate; thus, methodical and strategic planning are required in order for you to get the best out of your business. Exit strategies or “Continuity Planning” is not done overnight, nor are they supposed to be decided upon in haste.
An exit plan answers the following questions:
- What will happen to my business if key employees leave?
- What will happen to my business when the market goes against me?
- What will happen to my business if it becomes outgrows my skill set?
- What will happen to me and my business if my health deteriorates?
- Is my business ready to sell?
If these kinds of questions hit close to home, then as a small business owner, you must have an exit plan. Having a plan does not necessarily mean that you will give up your business eventually. It just means that you have a plan – that you are thinking ahead, and that you are prepared for whatever happens in the future. But how would you know what to do? There are many different kinds of exit plans:
- Liquidation – Entirely closing down your business and liquidate
- Keeping the Business in the family – Ensures the legacy of the business is passed down; usually preferred if there is already a Family Business Succession Plan
- Merger & Acquisition – Offering the services of your business to another company, either by merging with them or completely being bought by them
- Initial Public Offering – Selling your stock to the public
- Selling your Business – Offering to sell your entire business to a company or an individual
Why are exit strategies important?
There is really no specific recommended exit strategy for each business. Sometimes, you just have to decide what’s best for you and your business. This process usually involves reflecting on your own personal values, your future plans, and what you want for you business.
- You have to think about your objectives: do you want a profit out of it or do you want to pass it on to another family member?
- You have to think about your timeline: when do you want to sell your business?
- You have to think about who will be involved: do you have a partner you should talk to? Investors that should have a say on your business? Employees that will be laid-off?
- You have to think about your business: do you want to continue its operations or do you want to completely dissolve it? Are you looking for a buyer to turnaround the business?
“In a business as in life, you don’t get what you deserve, you get what you negotiate” – this is a quotation from Chester Karass, an American author. This statement necessitates the importance of planning ahead, of carefully laying out your options in the future. If you don’t know how to plan ahead, chances are, you’ll end up with almost nothing – not the legacy of your business, not even profits.
An exit plan is not just a plan for your business, it is also a plan for your life. So, better think ahead and consider the different exit strategies that you may want to take in the future.
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Brett Pittsenbargar is a savvy business investor and turnaround strategist dedicated to assisting business owners reach their objective at every growth phase, listen to an interview between Eric Dye and Brett Pittsenbargar. With a background in business development and investment experience, Pittsenbargar understands that business is much more than written contracts, it is about the people working every day in the business who matter.
Disclaimer: This article is intended to give you general business information, not to provide specific legal or financial advice. Be sure to consult your attorney, accountant, and financial professionals for any specific questions relating to your business.