5 Key things to consider when structuring your business exit strategy

Whether you’re preparing years ahead or you’re planning to exit your involvement with a business in the near future, having the right exit strategy in place is essential. Your exit strategy is designed to accomplish a number of essential things, from providing you with a better idea of what your end goal looks like and how you can ensure that you reach that goal as you leave the business behind to allowing you to make strategic decisions that can ultimately benefit you professionally and financially.  As you structure your exit strategy, make sure you keep these essential things in mind.

1. When do you want to leave?

One of the first things you have to consider when planning your exit strategy is when you want to leave your business. People can start planning an exit strategy for a number of reasons.

• The business isn’t meeting financial expectations, and you do not feel that you have the tools necessary to improve it
• You are nearing retirement
• Your business has met specific monetary goals
• You are no longer able to complete work for around the business the way it needs to be successful

Ideally, you want to choose to leave on your terms, at a time that is convenient for you and that fits your needs. That allows you to set a timeline in place that will allow you to achieve your goals. However, in some cases, you may need to make a faster exit than anticipated: for example, if the business starts to fail financially, or if you fall ill, burn out, or otherwise cannot complete your key business responsibilities. In those cases, you may need to set a faster timeline as part of your exit strategy.

Knowing when you intend to leave the business can also help you if you’re approached with an offer to sell. Suppose, for example, that you are still several years away from retirement, but someone offers you a high price to sell early. Have a plan in place for when you would be willing to take that offer and when it would better fit your needs to turn it down.

2. Who will take over the business when you leave?

As you plan your exit strategy, carefully consider who will take over the business when you’re done. There may be several options that will allow you to exit the business successfully, depending on your final goals. That could include:

• Training your team to take over the business on your behalf, allowing you to step away from the day-to-day responsibilities while still maintaining ownership or financial control
• Passing controlling interest of the business to a family member or designated heir
• Selling the company to another party

Knowing who will take over the business after your exit will allow you to prepare well ahead of time for those needs. For example, if you intend to pass the business to a family member or heir, you can make sure that they are fully trained and prepared for those responsibilities. On the other hand, if you’re selling the business, you can take the time to carefully consider the ideal buyer: not only where you want to market the business and to whom, but how you can ensure that the individual or entity that buys your business will carry on operations in the spirit you intend.

3. How can you maximize the value of the business?

There are several key elements to maximizing the value of your business as you hand it over to another entity. In some cases, you may want to make the business as valuable as possible for selling so that you can maximize your profits. In other cases, you may want to make sure that you have increased profits while you still have ownership of the company.

Paying down debts

Paying down debts before your exit is essential. If you’re planning to sell, high business debts can make it a less attractive proposition for the entities interested in buying the company. If you’re passing on the business to someone else, including a family member, you want to leave them with as clean a slate as possible before you pass on the business.

Improving overall profits

As you plan to pass on your business, you may want to look for strategies that will allow you to improve profits as much as possible. That may include strategies like:

• Increasing your customer base
• Providing the ideal product offerings for your current customers
• Hiring the right employees to carry out business tasks on your behalf, both now and in the future

Not only can solid profits make your business appear more attractive to potential buyers, having those profits now can help you plan for your exit more effectively.

4. What will your exit strategy cost?

As you prepare your exit strategy for your business, make sure you consider what your exit strategy will cost. In the case of an involuntary exit, including illness or business failure, you may not have a lot of options for reducing those costs. On the other hand, if you plan your exit well ahead of time, there may be options that will help you mitigate those costs.

Selling your business can prove more expensive than anticipated. There are a lot of costs that you have to take into account–and many of them, you may have to take care of up front. Prepare for:

• Valuation costs: The cost of hiring a professional to evaluate the financial value of your business before you put it on the market
• Lawyer fees: Your lawyer represents you throughout the sale and makes sure that your contracts are in order and everything is taken care of, as well as drafting contracts and taking care of other essential steps
• Marketing costs: You may need to actively market your business to let others know that it is up for sale
• Accountant fees: Hiring someone to manage the finances associated with the sale and with the business
• Your broker’s commission: Usually, your broker will charge a percentage of the sale price in commission

In addition, if you have a complex or large business, you may find that costs will rise significantly. In general, it can cost 10-15% of your business’s value to manage the costs associated with the sale.

The cost of passing on your business

Even if you’re passing on your business to another party, rather than selling it outright, you can expect some financial costs. For example, you can expect to pay for a lawyer and accountant to manage the legal and financial aspects of the transfer. In some cases, you may also need to factor in other costs: for example, if you’re passing on the business to someone who does not have your business skills, you  may need to consider the cost of hiring someone to take on those tasks. Carefully lay out the financial elements of that plan ahead of time so that you are not surprised by those costs at the last minute.

5. Is winding down the business the right strategy for your needs?

In some cases, you may find that, rather than passing on the business to another party, the right strategy for you is simply winding down or closing the business altogether. This is particularly common if you have a specific skill or license that is required to run the business, and there is no obvious successor who can take on those responsibilities after you’re gone. Many people will also choose to wind down or close a business when they’re the sole proprietor, since in that case, a buyer would be buying a job, rather than a functioning business.

If you are thinking about winding down the business, consider:

• When will you let employees know about the transition?
• When and how will you let customers know that you’re planning to close down the business?
• How will you manage any shareholders or other assets related to the business?
• What is the most effective way to manage final closing tasks?

There are also legal and financial elements associated with closing down a business that you must consider as you manage your exit strategy. Clearly laying out all of those elements ahead of time and creating a comprehensive plan for managing them can go a long way toward streamlining that process and avoiding unnecessary stress.

Get help planning your exit strategy

Do you have a comprehensive exit strategy in place that will allow you to easily and effectively transition out of your business? Exiting a business, whether you’re the sole operator or the leader of an extensive team, takes time–especially if you want to make sure that you have done it properly and protected yourself and your assets as much as possible in the process. Start your planning well before you’re ready to leave and avoid the pitfalls associated with both voluntary and involuntary exit from your business. We have an ‘ Are you Ready to Retire’ quiz which only takes a few minutes to complete.  If you’d like to have a go the link is https://fhmanning.scoreapp.com/. Contact Claire Markham today via email at mail@fhmanning.co.uk or visit our website to learn more about how we can help you accomplish those goals.