Exit Planning

Guide to Exit Planning

For most businesses, the “exit” phase may seem very far off, and while you’re busy enjoying running the business, you may not particularly want to exit. However, it’s important that you develop and plan an exit strategy.

  • It helps others prepare. For example, your managers and employees want to know about the future of the business, so they can feel secure in their jobs and understand their roles. Your investors and lenders want to know how you will pay them back if you exit the business.
  • It gives you a way out. You may need to leave the business for a number of reasons (e.g., retirement, burnout, or a medical emergency that leaves you unable to run the business). No matter what you’re facing, an exit strategy will give you a planned path out.
  • It allows you to better plan your business. When you have an exit strategy, you’ll be better able to direct the business. You’ll have more time to prepare for the end.

Step 1

The very first step in exit planning involves preparing an accurate account of your finances both personally and professionally. Looking at how much you owe investors or lenders is important, and how they can best be paid back. Undertake valuation of your business (Quick introduction to business valuation).

Step 2

Planning an exit strategy involves deciding whether you plan to transfer your business (to family, employees, friends), sell the business, or close your business completely (liquidate your assets). There are pros and cons to all three options, but it is important to be certain about your decision before proceeding. For most businesses, the most realistic and common options are management buyouts, family succession, selling the business to outsiders, or liquidating and closing the business.

In deciding your exit options, consider the following:

  • What are your priorities? What do you want to achieve? Would you rather keep things simple, even if it means losing some money, or are you willing to go a complex route to maximize profitability? Are you concerned with protecting your employees and managers?
  • What are your financial goals?
  • What is your business currently like? What is your business structure? Is it big or small? Flush with cash or in debt? Simple or complicated?
  • How much time do you have? When do you plan to retire?
  • How long do you want to stay involved in the business?
  • Do you have investors or creditors to pay off before exiting?
  • Do you have entrepreneurial family members or friends, or competitors that may be interested in the business?
  • Are you willing to list your business for sale?

There are different options to choose from, each with their own strengths and weaknesses. There isn’t a single “right” exit strategy, so consider your options carefully, keeping in mind the answers to the questions just posed. You should also talk with your employees, partners, investors, and advisors to find the option that will serve you best. The best exit strategy for your business is the one that best fits your goals, expectations, and business. If you want your legacy to continue after you leave, selling it to an employee, customer or family member may be the best option. Alternatively, if your goal is to exit quickly while receiving the best purchase price, targeting an acquisition by a competitor or another business or liquidating the company might instead be optimal routes to consider.

Step 3

Execute the exit plan.

  • Speak with your investors and creditors. Approach your investors, creditors, and other stakeholders to share your intent to exit the business. Create a strategy that advises investors and creditors on how they will be repaid.
  • Choose new leadership. Once you’ve decided to exit your business, start transferring some of your responsibilities to new leadership while you finalize your plans.
  • Tell your employees. When your succession plans are in place, share the news with your employees and be prepared to answer their questions.
  • Inform your customers. Finally, tell your clients and customers. If your business will continue with a new owner, introduce them to your clients. If you are closing your business for good, give your customers alternative options.