How to Create an Exit Strategy for Your Business
Knowing when to sell or exit your business may be planned or sudden, but if you’re a business owner, it’s important to have an exit strategy in place before the decision. This article will outline an exit strategy for your business so you can move forward when the time comes.
If you’re selling your business or simply handing it off to someone else, these tips should help give an idea as to where to start.
Talk to a Business Broker
A business broker can help you figure out the value of your business and find potential buyers. They can also help you negotiate the terms of the sale so you get the best possible price for your business.
If you’re not interested in selling your business, you can still create an exit strategy to pass it down to someone else. This could be family or a trusted employee. Before you do this, though, it’s important to have a conversation with the future owner about your expectations and what they would need to do to keep the business running smoothly.
Getting an updated valuation from a business broker can document the current value and help you move forward with the following considerations:
- Protecting the value of the business you’ve built
- Predicting the future worth of your business
- Creating a strategic direction for your business’s growth
Finally, as the seller, you need to be definitive about when and how you want to sell. Not being clear with when you “think” you’re ready to sell can cause problems with the selling process.
1. Create a Plan
Once you’ve decided how you want to exit your business, it’s time to start putting together a plan. This should include everything from how you’ll transfer ownership to what will happen to the employees.
You’ll have to decide on a selling price and strategy to find buyers if you’re selling your business. And if you’re passing the company down, you’ll need to create a training program for the new owner.
If you’re selling, you need to consider if you’re going to want to stay and help with the transition or exit quickly. Many buyers prefer that the seller stay on as long as possible during the transition.
The seller needs to also consider the deal structure they will accept. For example, would you be willing to do “seller financing”? Another example would be an “Upside – piece of the profit” kind of deal. It’s best to research all the options and know their pros and cons.
Finally, make sure your business reports are in order and the accounting method is consistent. Changing from showing a loss for taxes and then needing a profit for the sale can cause problems with getting a deal easily closed.
2. Get Your Finances in Order
Before you can exit your business, you must ensure all of your financial ducks are in a row. This includes getting your taxes sorted out and paying any outstanding debts. You should also have enough money saved so you can live comfortably after you leave the business.
Also, make sure your business reports are in order and the accounting method is consistent. Changing from showing a loss for taxes and then needing a profit for the sale can cause problems with getting a deal easily closed.
3. Let Your Employees Know
If you’re selling the business, consider how you’re going to tell your employees. Look at long-standing valued employees as an asset and consider how they could be incentivized to stay once the sale is completed.. If you’re passing the company down, they’ll need to be trained to do their jobs under the new owner. In either case, it’s important to communicate with your employees and let them know what’s happening.
4. Make It Official
Once everything is settled, it’s time to make your exit strategy official. This means drafting legal documents and transferring ownership of the business.
You’ll have to sign a sales contract and transfer the title if you’re selling the business. And if you’re passing the company down, you’ll need to create a succession plan that outlines how the transition will take place.
Consider if you’re going to publicly announce the sale/ transition of your business and balance out the pros and cons. Also think about whether you plan to stay for a period of time past the sale or how you’ll make sure those that are taking over the business can maintain the traction that has been built over time.
Observing these tips will help you create a smooth and successful exit from your business. But remember, the most important thing is to start planning early. The sooner you start, the better prepared you’ll be for whatever comes your way.
Smooth Sailing
Exit plans are an important part of any business owner’s plan. Having one in place ensures that your business is taken care of should the time come. So don’t wait — contact Sunbelt Business Brokers of Naples for a free valuation & consultation.