Why You Should Have an Exit Strategy
Updated: May 6
Most business owners don't think about their eventual exit from their business until it's too late.
An exit strategy is simply a plan for how you will sell your business. It doesn't have to be complex, but it should identify what you expect to get from the sale and when you want to execute the deal.
Above all, an exit strategy puts you as a business owner in greater control because you've planned for it, and it allows you the opportunity to maximise your business valuation.
Here are a few reasons why all business owners should have an exit strategy.
To minimise disruption
An exit plan minimises business disruption by outlining when and what pre-requisite conditions need to be met for an exit event to occur, which may include:
A market event
Time-based event (e.g. management retirement plans)
Business valuation threshold
Defining these conditions/trigger events minimises business disruption because business owners will know how far off these events are. Additionally, it allows business owners to quickly close down inbound offers for the business until those conditions are met.
Get a business valuation.
We've seen many business owners get shocked when they learn the actual valuation of their company. The press only reports on the largest multi-billion pound mergers, representing <1% of all deals completed each year, setting a false benchmark.
A professional business valuation helps you understand your business's value and insight into how much work needs to happen to bridge the gap.
To maximise your business valuation.
In our experience, the most common reason owners look to exit is that they want value back. They've put in the hard work, and now they want something in return.
An exit plan can help you achieve a higher valuation by ensuring that your business is ready to be sold or merged with another company. Here are some of the ways that an exit plan can help you maximise your business valuation:
a) Preparation is key
When it comes time to sell or merge your business, the potential buyers will want to see a well-prepared and organised company. Working to an exit timetable allows you to prepare your business for the sale or merger by outlining the steps you need to improve its performance.
This includes things like:
It's essential to get your business's finances in good order.
Tidying up messy commercial agreements
Remedying any issues within the business, e.g. unpaid taxes, disputes and litigation.
Improving the drivers of your business's valuation. These will vary by business type, but example drivers include:
Maximising EBITDA (earnings before interest, tax, depreciation and amortisation).
Maximising Annual Recurring Revenues (ARR)
b) Increased marketability
You can make your business more marketable by showing that you have a clear plan for the future of your business. As a result, you can make it more appealing to buyers looking for a solid investment.
Don't just offer potential buyers ideas. If your exit timetable allows, explore your future growth opportunities.
Prove overseas expansion ideas by gaining a new overseas customer.
Test the appeal for your products in new markets
Test new go-to-market ideas strategies
The more you do, the more attractive and valuable you make your business. Putting a for sale sign up outside your business with no plan or preparation will result in lost value for you. Don't just put your business up for sale. Understand what you want to achieve from an exit and plan to accomplish this.
An exit plan will help you maximise your business valuation by preparing your business for sale, increasing its marketability, and demonstrating its value to potential buyers. By following these simple tips, you can ensure that you get the most out.