When a business owner starts or purchases their small business, their exit strategy is often not at the forefront of their mind. But just like every other part of business operations, which are outlined in a business plan, your exit strategy should be thought out and intentional as well.
What is an exit strategy?
An exit strategy is a plan for a business owner to transition out of their business. Similar to how a business owner plans how they enter into business and how they grow the business, an exit strategy outlines the exit. Some business owners start their business with the intention of growing it for a certain number of years and selling to a new owner after that. Some business owners begin their business as a long term job and plan to work the business until they’re ready for retirement.
Why do you need an exit strategy?
It is important to build an exit strategy into your business plan for a few reasons. First, having an exit strategy is a good way to prepare an owner and their business for unforeseen circumstances like illness or a change in family circumstances. Second, knowing the circumstances of a future exit will help guide decision making for the business in a way that adds value when it comes to sell.
What types of exits are there?
There a few ways to exit a business such as selling to friends or family, selling to an internal party, or selling on the open market. Selling to friends and family is a great option for providing peace of mind about your business, but in reality the willingness of friends or family to take over the business is limited.
Selling to an internal party like an employee or manager is an ideal situation since they are already familiar with business operations, and it will be easier for them to access financing.The disadvantage of selling internally is that these business transactions are often prone to providing a lower than market value return to the seller.
Selling on the open market is a great way to receive a valuable return from exiting your business, and may even create a situation with multiple offers on the table, giving the seller the upper hand in a sale. A disadvantage of selling on the market is that the buyer may have their own plans for the business, that don’t necessarily jive with the current owner’s vision.
Conclusion
Building your exit strategy into your business plan isn’t necessarily about disaster planning, but it does situate your business in case your circumstances change or you need to exit earlier than you thought. Whether you have a very specific timeline for your business exit in mind, or just know that you plan to exit your business down the road, planning for your exit well in advance is a good way to prepare and ensure you make business decisions with that plan in mind.
If this article brought up questions about how to position your business for sale, we invite you to schedule a free consultation with one of our brokers or visit our website.
Rachael Holstein has been the Marketing Manager for Transworld - Rocky Mountain since 2016. Her work experience has been largely focused on business development and marketing in business brokerage, finance, architecture, property management, and information technology. A long time resident of Cleveland, Ohio, she attained her undergrad from John Carroll University and her Master’s Degree from Cleveland State University. In 2013, she relocated to Denver with her husband, Joe, and her furry companions to explore the mile high lifestyle!
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