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What Happens If You Fail to Exit Plan?

Posted by Randy Rinon in Articles

Leaving your company without the appropriate exit plan in place can expose you to so many problems through the process of selling. What might have otherwise been a seamless sale or something where you could have maximized your profit on the sale of your online business, can quickly go downhill if make a variety of mistakes such as selling too soon, overstating the benefits of the company and the truth being revealed during due diligence, or failing to exit plan.

A strategic buyer is someone who is interested in purchasing your company and being able to replicate or even exceed your own results. This means that if the entire business is dependent on you as an individual, you could be facing significant problems as you try to sell. A savvy buyer will be able to tell how much of the work you’ve already done to put systems, operations and plans in place.

What Is Exit Planning?

Exit planning refers to the methodical process of preparing a company for sale to maximize the potential for profits when sold in the future. When done appropriately, the exit planning process eliminates many of the what if concerns brought by sellers who would otherwise try to enter into a sale without preparing the right way. This is a process that involves numerous different activities to enhance the transferability, audit ability and scalability of your business, as well as maximizing profits and eliminating risks whenever these items can be identified.

The primary goal of engaging in exit planning is to remove yourself from the business as much as possible and to assist you with selling your company for the best deals, terms and at the top price. You don’t ever want to leave hard earned money on the table, but unfortunately, this can become a common issue for people who have not engaged in the business exit planning process. The more you can remove yourself from the company in the years and months leading up to the sale of the business, the easier it will be for you to show that your exit plan is already clearly established. This illustrates to the new buyer that he or she can step in with some training and hand-holding on your part and be able to continue the success of the business.

Common exit planning strategies include;

  • Putting together standard operating procedure documents.
  • Transferring written agreements from all employees, suppliers and other key stakeholders.
  • Making it simpler for the new ownership to take over without any impact on performance by implementing training programs.
  • Ensuring the business is using best practice accounting methods.
  • Maintaining correct financial records.
  • Identifying and taking action on various growth strategies to enhance profitability.

What Should Be Included Inside an Exit Plan?

Every exit plan should begin with a comprehensive business valuation, which will give you a clear start for what the company is worth today. From this point on you can identify a target exit price and begin to look at different exit scenarios. This is your opportunity to review what deal terms and acquisition structures are most appealing to you individually. Set realistic and simple exit goals, look at the key value drivers for your business, generate action items that can improve the business over time and work with an advisor or business partner to hold you accountable.