In a previous blog, we discussed the benefits of exit planning. The exit planning process does not have to be difficult, but it’s something that far too many company owners ignore.
Exit planning is crucial for making a transition out of your business because it is likely to happen at one stage or another and yet far too many otherwise successful business owners miss out on the opportunity of exit planning, exposing them to significant problems when it is time to make a transition.
Whether a business owner is planning to sell the business in the future or not, an exit plan is important to have because the future is uncertain. With an exit plan, there is a definite action plan of things to do if the business is sold, ventures into another business, or closes down. An exit plan is succession planning in action.
The exit process will look different from one company to another but this is a comprehensive task that should be undertaken carefully. The management team can develop effective exit planning strategies that include:
All of these elements of passing on your business can be very difficult to understand on your own. Establishing a rapport with an experienced website broker is the first step in identifying what you need to do to carefully consider your concerns.
Business plans are a crucial aspect of future-proofing the long-term needs of your business. However, if you don’t have an established relationship with a business broker you can trust, you’ll leave yourself open to making significant mistakes.
Part of a successful business plan is to develop an exit objective that can keep the transition as smooth as possible. The objectives ensure that the management team will preserve the brand’s value and integrity, preserve stakeholder relationships, reduce risks, and ensure financial security.
What is a business exit plan without an exit planning team? Key team players make up a strong exit planning team and they include the following:
These are just some of the members of the team. Depending on the cause of the exit, this could require more people to aid in the exit planning process.
Several aspects of the business need to be checked when preparing the exit plan. Before a business valuation has to be done, an analysis has to be conducted – financial, operational, market, human resource, risk, customer, and growth.
A careful analysis of the business can aid in having a better valuation result and lead to a profitable outcome.
The main goal of having an exit plan is business continuity. This means maximizing the returns while minimizing the liabilities that could potentially arise, especially tax liabilities post-exit.
It is important to have a financial plan that addresses cash flow management and to implement a tax plan to reduce tax liabilities. Potential buyers look at how financial assets are managed and tax strategies are utilized.
Transitioning a privately owned business to new ownership is a lot simpler than big corporations. While that may be the case, the transition plan has to be in place. Family members could be the new owners or it could be another entity.
Details of the transition plan include a comprehensive documentation process, setting clear objectives and expectations, knowledge transfer, creating a transition timeline, including the employees and stakeholders in the transition plan before exiting your business.
A crucial aspect of what is an exit plan for a business that works effectively other than the plan itself is implementing and executing the plan.
With plans to sell your business, you would already have an idea of what it takes to implement a transition plan. More than anything, when you implement the plan, your business could benefit from it because you ensure business continuity, protect the business value, reduce risk and have a smooth ownership transition.
In case of a management buyout where the existing management decides to buy the business themselves, implementing the plan can be more efficient and quick since they would already have in-depth knowledge of how the business operates.
Mistakes can be easily avoided when you have the support of an attorney and other business professionals such as a business broker. Exit planning is something business owners think about only after the fact of an emergency or a sudden development in the company that means they must reconsider what to do next.
These problems can all be easily avoided by retaining the services of a business broker who is familiar with every aspect of the business sale process and business valuation.
With you having such a high personal stake in selling and transferring your business to someone new, you must have an established relationship with a business broker who is highly familiar with this landscape and the common pitfalls.
Exit planning is a must in any business even when they do not have plans of selling in the immediate future. This, however, protects the interest of the business and its stakeholders from threats and risks of not having a continuity plan.