Article

Why businesses need exit strategies

If you’ve heard the saying “dance like no one is watching” or “sing like no one is listening” then perhaps you might relate to; “Run your business as if you were going to sell tomorrow”.

Whether you’re just starting out in business or have been in business for decades or generations, at some stage you will need to either sell, reinvent, pass on to successors or potentially even close the doors of your business. Just like death and taxes, an exit or succession from your business is inevitable, ask the shareholders of Encyclopedia Britannica, Motorola, Blockbuster and Kodak to name but a few. Every business owner will sell or move on eventually, just ensure it is on your terms. 

In business, you’ve always got to start with the end in mind. That’s why exit planning is such an essential part of creating a solid business strategy.

Most business owners fail to prepare or plan appropriately for when they will eventually exit their business, meaning that when they do it is often rushed, ill-prepared and at the wrong time to extract the maximum sale value. Having an exit strategy in place early on can help you to make decisions that will support your eventual exit. This allows the process to be as easy and profitable as possible. Not only that, a sound business plan, consistent with a well-thought-out exit plan, will ensure you maximise your profitability while still in business. 

A business life cycle, much like a product life cycle, measures where a business sits on the profitability and growth continuum over time and will be defined as at one of the following stages: Startup, Growth, Maturity, Decline and either Rebirth or Death. Where your business sits within this continuum will be one of the main determinates as to how much it is worth on exit and how quickly you will sell it. The aim is to leave your business in the best possible shape for a new owner. That means it should be operating at peak profitability, the books should be spick and span, and all your processes will be written down so a stranger can come in and run the place. Oh, and the business won’t need you anymore – no matter how important you once were.

Your exit strategy can be either built around hope or a predefined plan as to how, when and what you exit. The choice is always yours, but the returns will be what someone else is prepared to pay. Let’s face it, running a business is not easy, you deserve to be well rewarded when you sell so be prepared and remember, it’s never too soon to start on your succession plan or exit strategy.

If you are looking to sell your business in the near future, get in touch with SBA to make sure your books are in order.

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