Planning an effective exit strategy
Planning an exit strategy from your business is nearly as important as planning the business’s startup. Your exit strategy can help to seal the fate of your entire business, and it can help to determine whether or not you achieve your ultimate goals as a business owner, whether those goals involve selling, expanding, merging, or passing ownership to a family member. Whatever your goals, understanding the most common reasons that exit strategies fail can help you to ensure that yours doesn’t. Avoid making the three mistakes listed below:
1. Not including a succession plan
What are your dreams for your business after you depart? Do you picture your son or daughter running the company? Or do you envision a grandchild taking over in your stead? If your plans involve passing the business to another individual, it’s vitally important that that individual know about those plans. This seems obvious, but a surprisingly large number of business owners never fully discuss these plans with their intended successor.
Don’t make any assumptions about your exit from your business. Your exit strategy must be based completely in reality, not your unfounded dreams. If you intend for another individual to take your place, be sure that they are prepared to do so. It’s often beneficial, in fact, to involve them in your exit strategy planning.
Also, be sure to take steps well in advance to prepare them for their role. If you were to die today and your intended successor wasn’t prepared to take over, your plans for your company could be tossed aside.
2. Using outdated valuations
Too often, business owners form an exit strategy hastily. When this happens, that exit strategy is far more likely to fail. Believe it or not, some business owners determine an exit strategy early on in their career and then never revisit that plan. This is a huge mistake, though, because your plans for exiting your business must be realistic. If you plan to sell your company and use the money to fund your retirement, it’s extremely important that you know for a fact that the money you gain in the sale will actually be enough to fund your retirement.
Again, this seems like common sense, but too often, business owners use outdated valuations and make assumptions about their company’s worth. If you’re planning to sell in the future, though, it’s extremely important that you have a realistic idea of what your company is worth in the current market.
3. Being inflexible
Being inflexible with your exit strategy is one of the worst mistakes you can make as a business owner. Just as it’s important to keep up to date on your business’s valuation, it’s also important to periodically reevaluate and update your goals and motivations. Your exit strategy is not carved in stone, nor should it be.
For example, perhaps you’d planned to sell your business and retire four or five years from now. But what if an investor came along with a handsome offer today? How much money would be enough to convince you to sell? What if the market appeared to be heading for a downturn in the near future? Would you agree to the offer then? These are the types of things that you should take the time to consider when outlining an exit strategy. Goals and opportunities change, and your exit strategy should change along with them.
If you care about your legacy as a business owner, then neglecting your exit strategy is a terrible mistake. Your strategy must take into account your company’s current situation using realistic guidelines, and your succession plan should be equally well-prepared. And if your situation changes in the future (and it will), don’t be afraid to adjust your exit strategy accordingly.
If your business is part of the transportation industry, then consider hiring a specialized transportation business broker to assist you with the sale of your current business or the purchase of a new business.