My first question in any business conversion: “What is your Exit Strategy?” Without that answer our chat has no path, is without direction and has little to no success upon its conclusion. One definition of “Exit Strategy” is defined by John Hawkey, the author of Exit Strategy Planning: Grooming Your Business for Sale or Succession, “An exit strategy is a means of leaving one’s current situation, either after a predetermined objective has been achieved, or as a strategy to mitigate failure.”
People start companies for different reasons which can influence their exit strategy. The truth is that many small business owners have no exit strategy for their businesses in the event of their disability, retirement, or death. It isn’t surprising small business owners focus their energies on business survival, future growth, and even remaining active in business after retirement. However, a business exit strategy not only means having a plan for the unexpected, including financial hardship, injury, disability and even death, it also means having a plan for the succession or transfer of ownership of your business when it comes time to hang up your hat and retire. Some plans may include:
– Selling a portion of your company in the public markets in an IPO.
– Having another company purchase your business, a “strategic acquisition.”
– Make the business your “cash cow” by finding someone you trust to run it for you.
– Selling the company to the next generation, also known as a “management buyout.”
– The often-overlooked exit strategy of simply to shutting down, closing the business doors, and liquidating remaining assets.
For some, an exit strategy sounds negative. Actually, the best reason for an exit strategy is to plan how to optimize a good situation, rather than get out of a bad one. This allows you to run your business and focus efforts on things that make it more appealing and compelling to the short list of acquirers or buyers. Success starts with a plan that may include creating a peer board, upgrading financial reporting systems, or defining internal operations and training manuals.
Once your exit plan is defined, your marketing approach will need some tweaking. Marketing your company for growth is slightly different than the approach needed in presenting it to potential strategic buyers or investors. First things first; make sure you fully understand and can explain where you are right now. What customers do you have and how do they behave? What marketing are you doing, and what’s working? What’s happening in the marketplace and what are your competitors doing? What marketing methods are available?
Planning your exit is a big undertaking that affects employees, your business structure, its assets, and your tax obligation. Before you embark on your exit strategy, be sure to engage your lawyer and even a business evaluation expert like myself. That way, you will be sure that you have explored all the options available to you.