Having a well-thought-out exit strategy is crucial for the success of any business or investment. Yet poor planning, an eye to the current, and a lack of innovation are potentially leaving thousands of pounds of unrealised value on the table, warns entrepreneur Luke Smoothy, Founder and Director of manufacturing specialist Get It Made.
One of the key barriers to exiting a business is a lack of business strategy. Business exits are often driven or expedited by a change in personal circumstance such as ill-health, burnout, or a desired lifestyle change. Having a good quality exit plan in place is essential as it avoids unnecessary complexity and the consequential loss of potential financial value. Here are some simple tips to consider when developing your exit strategy:
Start Early: Begin thinking about your exit strategy when you’re first starting your business or making an investment. The earlier you plan, the more options you’ll have.
Set Clear Objectives: Define your goals for the exit. Are you looking for maximum profit, a smooth transition, or to pass the business to family members? Your objectives will shape your strategy.
Know Your Valuation: Understand the value of your business or investment. This involves assessing assets, revenue, profitability, and market conditions. Knowing your worth is essential for negotiations.
Diversify Your Options: Don’t rely on a single exit strategy. Consider various possibilities, such as selling to a competitor, merging with another company, going public through an IPO, or passing the business down to a family member.
Build a Strong Management Team: Having a competent and capable management team in place can make your business more attractive to potential buyers or investors. It also ensures a smoother transition. Potential buyers or successors want to know that the business is a well-oiled machine, and that they can continue running it the same way while they bed into the business.
Keep Finances in Order: Maintain accurate financial records and clean up any outstanding debts or legal issues before executing your exit strategy. A clean financial history will make your business more appealing to buyers.
Understand Tax Implications: Consult with tax experts to minimize tax liabilities during the exit. Different exit strategies have different tax consequences, so plan accordingly.
Seek Professional Advice: Consider hiring financial advisors, attorneys, and business brokers with experience in exit strategies. They can help you navigate the complexities and ensure the best outcome.
Continually Assess Market Conditions: Stay informed about industry trends and market conditions that might impact your exit strategy. Timing can be crucial.
Communicate with Stakeholders: Keep employees, investors, and other stakeholders informed about your exit plans to mitigate uncertainty and maintain trust.
Identify a target buyer: This doesn’t mean a specific company as such, but rather the type of business that would be a good fit for yours. Acquisitions offer buyers a shortcut for business expansion and growth, so businesses want to see the value you can bring that they can’t attain themselves through natural growth. Identifying a model buyer can help guide your thinking and your planning to make you a suitable candidate when the time comes. This can also help you align your business to contingent change, for example ill-health or a change in priorities, allowing you to accelerate your exit strategy if you need to.
Execute the Exit: When the time is right, execute your chosen exit strategy with precision and professionalism. This may involve negotiations, legal documentation, and other processes.
Consider Your Legacy: Think about what legacy you want to leave behind, whether it’s maintaining the company’s values or supporting charitable causes.
Ensure a Smooth Transition: If selling the business, work closely with the new owner to ensure a smooth transition for employees, customers, and suppliers. The single biggest thing you can do to prepare for your exit is to make yourself superfluous, ensuring that the business can operate effectively regardless of the person at the helm.
Evaluate and Learn: After the exit, evaluate the process and outcomes. What worked well, and what could have been done differently? Use this knowledge for future endeavours.
The average micro business is worth £90,000-£100,000 at the point of sale, which could prove a nice boost for your retirement. Formalising your exit strategy is the single best option for increasing the personal worth of your business and helping future proof your finances. Remember that the specific exit strategy you choose should align with your individual circumstances and goals, and it can change as you and the business changes, but it needs to be in place for every eventuality. If it isn’t, then you’re leaving money on the table from your years of hard work and effort.
