Many business owners don’t want to spend time on exit planning at the early stage of the business. They don’t realise the benefit early planning can bring in the future. There’s no telling when and how a business owner will need to leave the business, so it’s best to plan for different exit possibilities now.
What does exit planning actually mean for the business?
Exit planning aims to align the business’s strategic direction a.k.a. the roadmap that a company needs to follow to get to where it needs to be, to the owner’s vision of a successful exit.
The exit plan specifies the owner’s personal and financial goals as well as the exit strategy to achieve them. It is also a continuity and contingency plan that specifies a survival plan for any unexpected or unplanned events that could affect the business.
Ultimately, the right exit plan gives peace of mind to the company’s owner and employees with regards to what should happen to the business in the near or far future.
Why smart business owners should start planning for their exit now
Ideally, business owners should consider exit planning when they start their business. The following are some of the reasons why it’s a smart move to start exit planning now.
- To have time to create the right exit plan
The right exit plan depends on the owner’s personal and financial goals as well as that of the business’s financial performance. Preparing the plan will need time to determine where the business stands today and what more needs to be done to achieve the exit goals.
Exit planning at the start or at the early stages of the business will help owners structure their business along the path to a successful exit. Doing it right sooner will save the owner from delays in executing the exit plan.
- To have ample time to implement, monitor, and control the exit plan
Executing the plan will take much longer than creating one.
Implementing the exit plan is done with the intent to achieve the expected results. This was the whole point of creating a plan to begin with, but just because there’s a plan doesn’t mean that things will magically fall into place all by themselves.
The exit plan includes parameters to ensure that it is being implemented correctly. If monitoring shows some non-compliance, the owner needs time to identify the reasons and determine the corrective actions needed.
You may consider, for example, if the employees need more training or operations procedures are not clear. You need to remember that a business’s strategic direction is tied closely to your exit plan, so don’t underestimate potential gaps in the equation.
- To give yourself and your business some room for adjustments
No matter how well you prepared and implemented your exit plan there is no assurance that the business will be ready exactly as planned. Its very possible to face certain internal and external factors that will prevent the business from achieving its exit goals.
A business owner needs time to change or adjust the exit plan so that the business can be back on track to achieve the exit goals. This is where the importance of planning for exit now comes in handy — the sooner you plan for it, the more allowance you can give yourself and your business for possible hiccups in the future.
- To be able to prepare the business for unexpected events
An exit plan can help a business weather unexpected events (e.g. economic downturns, sudden death, or illness). Your business won’t feel the benefit from this protection if there was no exit plan yet when unexpected events happened.
Similar to how medical professionals advise prevention before the arrival of the disease, the concept of preparing for unexpected events in business could save it at its critical moment.
- To give time to maximise the company’s valuation
An exit plan can help business owners to maximise a company’s value. To do this, you must have a smart, feasible exit plan to execute; which means that the owner needs time to:
- Identify the best ways to increase the company’s value
- Identify sources of recurring revenue. This will help make the business look more valuable to buyers
- Build the business so that it can profitably operate without the owner. This will also add value to the business
- Keep financial records and be prepared for due diligence
A company would need time to increase its value by having a well-trained and committed management team. All these need to be accounted for in your exit plan.
Potential consequences of not creating an exit plan as soon as possible
Exit planning is a complex and time-consuming process to make a company ready when the owners finally decide to exit. Not creating an exit plan at the start or early stage of the business can result in:
- Insufficient time to prepare the company for the owner’s exit;
- No survival or continuity plan if unexpected events happen at the early stage of the business;
- An exit strategy that would result in a lower return for the business owner; and
- Lost opportunity to achieve the owner’s personal and financial goals.
Business owners will exit their businesses eventually. Ensure your successful exit by creating and implementing an exit plan at the early stage of the business. It takes time to fine-tune an exit plan so that it can help a business achieve its exit goals.
Some business owners keep on postponing their exit planning because they are not sure if they can do it correctly. This isn’t a problem business owners need to face on their own because there are experienced advisors who have done it before, and continue to mentor scale-up owners who are not entirely sure where and how they want to start, if they want to start at all.
With everything that’s on the line for your exit plan, consider doing it right by working with an expert who is able to give you advice and help you develop the foresight you need for your exit plan.