According to recent statistics, 48% of business owners looking to sell their company have zero exit strategy. Yet, planning your exit is an essential part of any business, as it is absolutely guaranteed that you will exit your business at some point – either willingly or not.
Contrary to popular belief, creating an exit plan doesn’t automatically mean that you are building a business to sell. In fact, it means that you are more likely to build a resilient and long-lasting business as you are able to plan for unforeseeable circumstances.
Whether you plan to run your business for the rest of your life, or you want to give the business up so that you can enjoy an early retirement – an exit strategy is a great way to ensure that you have a plethora of options to choose from when you walk away.
What is an exit plan?
An exit plan refers to the preparation taken by an entrepreneur to efficiently leave their company while ensuring that the value of the business has been maximised for potential mergers, shareholders and so forth.
An exit plan is heavily influenced by the way in which the business has been set up and the growth potential of the business. Therefore, to maximise profits, business owners need to ensure that they make strategic changes to help the business reach its maximum potential before exiting. The changes cannot be implemented overnight, and an exit strategy can take several years to perfect.
Why is an exit plan necessary?
Creating an exit plan is the perfect way to safeguard your business from any unforeseen circumstances. If you are pivotal in the running of your business, then you will need to change this in order to maximise growth.
Many businesses that are in their prime may show symptoms of needing an exit plan, the key indicators of a business in trouble are:
- Business slows down when you take time off.
- Business growth begins to plateau.
- More and more customers seem to be raising issues with the business.
These symptoms indicate something named ‘The Owner’s Trap’ and suggest that once the business owner withdraws from their business, then the value of that business will vastly diminish. In order to avoid this from happening, owners not only need an exit plan but to also create value within their business.
Using resources such as the Entrepreneurial ScaleUp System – a proven system to achieve ScaleUp – can help business owners to assess and identify gaps in their structure. These resources can be key to strengthening a business before exiting and assist in taking the business from a small operation to a bigger running machine.
How to create an exit plan
An exit plan should be something that you create at the very start of the business, as this gives you good indicators of the type of goals you want your business to achieve. This strategy can steer you in the right direction for your goals and ensure that your business maintains an aspect of longevity.
This plan is also fundamental for easing the effects of life’s unexpected happenings, such as a long term illness or divorce, which could jeopardise the running of your business
The central factor to keep in mind when building an exit plan is ‘The Switzerland structure’, which details whether the business is able to run on its own without a key supplier, customer or employee and takes into account the versatility of your business. This is perhaps one of the most fundamental things to consider when building an exit strategy as it stresses the importance of the business’s autonomy without the owner and places the business in the perfect position for investment.
What are the benefits of an exit plan?
The perks of having an exit plan are undeniable and can be summarised in four main points:
- Value: developing an exit plan will help you to release more value from your business when you decide to sell.
- Business success: having an exit plan means you will automatically focus on the elements that will make your business stronger.
- Protection: an exit plan can provide your business with ample protection against unforeseen events such as changes in the marketplace.
- Stamina: by putting an exit plan in place, you can plan for the future and can be more enthusiastic to run your business longer.
How to build value
A common misconception many business owners have is that their business is worth millions of pounds due to the hard work they’ve put into it. Unfortunately, your efforts do not determine how much your business is worth when you decide to sell, instead, it comes down to a few essential attributes.
First and foremost, you will need to ensure that your business is scalable, which essentially means your business is able to experience continual growth. This is a huge factor in whether you can attract investment. By having an investable business, when the time comes and you want to retire, you will have ample interest and a large sum to reflect all your hard work.
There are various other value-building aspects that need to be solidified when running a business and creating an exit plan, this includes things such as recurrent revenue, customer loyalty, financial performance, as well as key aspects of business structure.
Value can be built by honing in on these aspects and ensuring that a business is on top of its game. When these factors come together, it results in a highly valuable and profitable business that can be easily sold.
Focussing on building value within a business helps owners better understand their own long-term goals and the direction that they want their business to head in. It can help a business exceed its targets and even transform a small business into a larger internationally run corporation.
The changes most business owners need to make to create a successful exit plan take time – these are not things that can be put in place overnight. Hence, it is good to start planning your exit well in advance and ideally, several years before you want to exit.
Solidifying an exit plan is not only a good way to safeguard a business, but it is also pivotal for identifying key goals that a business wants to achieve in the long term and can help a business better map out its journey and achieve long-term success.