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What Happens If You Fail to Exit Plan?

Reviewed By Jason Guerrettaz

Written By Randy Rinon

Published April 5, 2019

Updated January 20, 2025

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What Happens If You Fail to Exit Plan?

 

 

Leaving your company without the appropriate exit plan in place can expose you to so many problems, including crippling financial implications 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 you make a variety of exit planning 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 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 maximize profits and eliminate risks whenever these items can be identified.

The main reason anyone would want to engage in an exit plan is to enable one to remove themselves from the business as much as possible. It will help you in selling your company for the best available deal and terms at the highest price. You don’t ever want to leave hard-earned money on the table; unfortunately, this can be an all-too-familiar problem for those who still need to go through the business exit planning process. The more one is able to distance oneself from the company in the years and months leading up to the sale of the business; the easier it will be to demonstrate that your exit plan is already clearly established. This will help the new buyer understand that he or she can step in, with some training and hand-holding by you, and be able to continue the success of the business.

Common Exit Planning Strategies

There are dire consequences of failing an exit plan, which makes understanding the exit plan extremely important. Good exit planning is vital for all business owners who want to receive the absolute best value for their hard work. Address any potential problem earlier and put in place intelligent plans so that your company can go out smoothly and realize some money. Whether you sell a business or change hands to new owners, the right steps provide big opportunities and guarantee that your money’s future is well-guarded. Some of them include the following:

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 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.

Common Exit Strategy Mistakes

First, there are some critical mistakes to avoid when getting ready to leave your business. They can blow up your best-laid plans.

1. Late Planning

Many entrepreneurs need more time to start thinking about their exit strategy. More often than not, entrepreneurs react rather than plan, which can hurt the value of their companies. An early start can make the process smooth and successful.

2. Unrealistic Valuation Estimation

Unrealistic value estimation is one of the most common exit planning mistakes one should try to avoid while planning to sell their business. Sometimes, the owner of the business may evaluate his or her business at a very high price above its real value; they end up being disappointed.

3. Poor Tax Planning

Exit plans can save a business owner a lot of money. Few of them realize that the act of selling his or her company affects taxes, and forgetting the tax aspects means losing much money and further causing costly legal and tax issues.

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