It may seem somewhat contradictory, but an intrinsic question when you start a business should be 'how do I plan to exit?' In that one question, you'll embody your vision for the business and exactly what you want to achieve. You can ensure that the structure and processes you adopt will support that aim.
In fact, no matter what stage you are at in the lifecycle of your business, you should always have an exit strategy in place; think of it as part of your regular strategic review. By integrating your exit strategy into your business plan, ideally from the very beginning, you can review and adapt it as the business evolves.
Any investors will be as interested in your exit strategy as your sales projections. Serial entrepreneurs and investors often realise 50%, sometimes 100%, above valuation by employing a well-designed and executed exit strategy. They don't achieve that level of return as an after-thought.
But of course, the exit strategy you employ will be determined by the unique factors of your business: whether you've developed the business to be your own boss, create a long-term family legacy or generate capital growth with a view to sell.
And, if you didn't have your exit plan drawn up from day one, don't despair. It's not too late to start the process. Whatever your motivation or your timings, the following steps will help to guide you through.
Preparation
Careful long term management will help shape the business so that it's suitably prepared for your chosen exit option. This will also determine the type of planning you'll need in place. Do you want to achieve a pension or deferred income from the business; are you selling it as a going concern or winding it up, do you want to retain some level of involvement – and what are the tax implications of your choices?
If you are looking to sell, then a healthy balance sheet, a bulging order book, and premises and plant that are fit for purpose are a pretty compelling proposition.
Succession
Whether a member of the family, current employee or an external MD is lined up to take over the running of the business, embed them in your plans. Mentor them for as long as it takes for the business to become part of their DNA. Be prepared for frank and open discussions about their vision for the future of the business. It might not always align with yours.
Timing
A robust exit strategy will enable you to control the timing of your departure to take advantage of favourable market conditions and the lifecycle of the business.
Selling
This is the most common goal of an exit strategy. Whether the business is sold in a management buyout, a merger or acquisition, or an initial public offering prepare the business appropriately ensuring you meet all necessary legislative requirements.
Never forget that selling a business well requires multiple bidders with differing motivations affecting the value they perceive in the business. Understanding their motivation will help maximise your return.
The market is very illiquid: valuations are very subjective, and information can be hard to come by. Mergers and acquisitions advisers can help.
Be rational
Look upon your exit strategy as a way of realising your ultimate goal and maximising what you take away from the business. But, as with your business plan, your exit strategy should be both feasible and realistic.
It can be difficult to be rational and dispassionate especially when developing an exit strategy for a business you've invested time and energy in. Independent advisers or even a mentor, could prove invaluable.
A well-designed and executed exit strategy will ensure a smooth transition and the best return on your investment.
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