In many family businesses, particularly if you are in the second or third generation there is a Business Risk around developing a sound Exit Strategy. Performance, personality and pride are all on display and can seriously impact on the value of a business if the decision is taken to “Do Nothing” because it all gets too hard to agree on the best option for your Business Exit Strategy.
It is for this reason that a key question I like to ask of prospective and new clients is – do you have an Exit Strategy? My experience is you don’t have to know the exact Exit Strategy because you can’t predict the future, but you can plan for it.
Where should you start?
I believe a sound basis for a Business Exit Strategy starts with the business plans; for the Board and shareholders.
For most business owners there are four main options to exit their business including:
- Sell out completely or partially to a third party.
- Acquiring and/or merge with a complimentary firm and progressively move out of key management roles.
- Stepping aside in a management buyout scenario where one of the senior manager or several senior managers assume more day to day control as you step back, or
- Depending upon the size of the business to consider an IPO. A key question with an IPO, comes down to wishing to stay private for competitive reasons as going public brings a higher level of scrutiny that can be good and bad not to mention more expensive?
I believe for many business owners the earlier you think about the Exit Strategy the better your understanding as to what your options are so when the time comes you are prepared. By starting early it also allows you to properly plan and execute your business plan. As part of your business plan working with your advisors, whether they be family members, an Advisory Board or external consultants we would recommend spending quality time thinking and researching the different types of exits and how they apply to your business. Timing and preparation are important as you can’t predict the exact final destination but you can prepare for the journey!
The detail that the Exit Strategy must have differs by how new the business is and what motivates you, the business owner. For many business owners there is also a significant lifestyle question to address at the same time. I have met many business owners who for lifestyle reasons hang on to their business beyond the peak valuation simply because it is too hard to give up the personal lifestyle associated with owning the business.
Questions I would encourage you to think about when thinking Exit Strategy include:
- Do you want to sell to a larger company,
- Do you want a family member to take over,
- Would you like to sell to current management?
All these decisions will impact how you prepare for the inevitable exit from the business. For many business owners your business will be one of the most valuable assets you own. For the future business owners your client base, intellectual property and indeed your historical database of how your business has achieved sustainable profits over an extended period will come down to staff and customer relationships along the way. It is critical when the time comes for you to step aside and have a business that can successfully operate without you. This is the ultimate test of a successful Exit Strategy.
Have you created such a business or are you really trying to sell your job? Are you able to rely on a broad base of customers selling a range of products or services? Your focus on answering these questions will direct how you choose to build the business and be ready to sell at a time of your choosing.
Do you have a Business Exit Strategy in place?
If this blog has inspired you to formulate a better Business Exit Strategy we would love to talk with you about the detailed plans.
Good luck with your business venture.