After building a successful business, many owners are ready to leave their business and take on the next challenge. However, many do not have a sophisticated plan in place to do this while ensuring their assets and legacy are secured and protected. In fact, 48 percent of entrepreneurs in Britain have admitted to having no exit plan at all.
With the time, money and energy it takes to set up a business, it is critical that owners have a good strategy in place when it comes time to move on, to both maximize business value and ensure a smooth transition to ensure.
So while there are no downsides to having an exit strategy for a business owner, there are some important benefits. Below we explore why exit plans are critical, what benefits they bring, and what your plan should consist of.
Why you need an exit plan
The rapidly evolving needs of a typical business landscape can create unpredictable environments, meaning business owners looking to exit their business must anticipate potential exit scenarios and ensure their own interests are protected.
Without a plan, owners can find themselves in a vulnerable position. For many, a large part of their wealth is tied up in their business. This means that once a decision is made to exit the business, owners can find themselves in a precarious financial situation without the proper planning to unlock that value and ensure financial stability post-exit.
In addition to financial security, there are many more reasons why an exit strategy should be in place, including circumstances such as the dissolution of a partnership for personal or professional reasons, changing market conditions or simply other unexpected business or financial setbacks. In such scenarios, a codified exit strategy sets out a roadmap that protects both you as a business owner and other parties involved.
Limit risk
As with everything in business, it pays to plan ahead. By considering the possible future scenarios surrounding your eventual exit from your business, no matter how unattractive, and then planning for the worst, the business, you as the owner, and everyone involved can more easily navigate potentially challenging circumstances. Additionally, effective exit planning can avoid costly, lengthy and risky legal battles over disputes that could make a smooth, seamless exit impossible.
By developing a proactive exit strategy, risks and potential pitfalls can be more easily identified. With contingency plans built around these risks, whether financial, logistical or legal, owners can better position themselves and their interests to mitigate these challenges.
Maximize value
While ensuring a smooth transition and therefore preserving the legacy of your business is of paramount importance, a clear exit plan from the business owner’s perspective also helps you get the maximum value from your investments in the business.
When creating such a strategy, proactive, positive steps can be taken to increase the value of the company and in turn better position it for a successful, smooth exit while maximizing your returns. In such cases, a good plan may include not only ways to increase the value of the company, but also the necessary measures for identifying and vetting potential buyers or investors, and steps for conducting a valuation of the company.
What makes an effective exit plan?
A good exit plan should obviously identify the factors that are likely to cause the need for your exit as a business owner, which could be based on personal goals, financial factors, or something else entirely. By identifying these triggering factors, business owners are better positioned to know when and how to take action.
Clearly defining procedures during your departure is also necessary to ensure a successful transition and minimize potential conflicts or disputes. This may also involve additional agreements or contracts, such as confidentiality or non-compete clauses.
In all cases, the exit plan should clearly and specifically describe how the company and its assets will be valued and distributed so that your interests are properly protected during your departure.
Final thoughts
Effective exit planning is a complex process, not only in developing an initial plan, but also in ensuring that it is kept abreast of changing goals and circumstances. It is therefore advisable to work with a specialist in this field who can ensure that your personal financial freedom goals are achieved while preserving the legacy of your business. In addition to these obvious financial benefits, a robust, up-to-date exit plan provides invaluable peace of mind for business owners, providing a roadmap for mitigating risk and protecting your interests.
Julia Barnes is the founder and managing partner of Barnes Law.
More about exit plans
Partial Exits: A Balancing Act – If done right, a partial exit can move your business forward by introducing new people with different skills and experiences, while allowing you to enjoy some of the wealth you’ve generated.
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