By Ryan Binkley
Often in life, we wait until a change in circumstances to make a big decision. Exit planning is an example of something so many entrepreneurs put off. In business, our focus is firmly on the here and now decisions: marketing, HR, inventory, cash flow, etc. It doesn’t feel like there is the time or the impetus to create an exit strategy, especially if you don’t plan to sell soon.
But, you can’t be complacent about exiting your business. A study by Securian Financial revealed that 72% of small business owners have no exit strategy at all. The reality is it can take years to execute a successful exit, so the endgame needs to be in your mind from the start.
The earlier you establish your exit strategy, the clearer the vision for you and your company becomes. If you don’t believe preparing is a priority for your business right now, these 10 reasons will open your eyes to the benefits of creating your exit plan early for the present and future of your business.
1. It will change how you guide your company’s future
Outlining your exit strategy, above all else, gives you a blueprint for the future. It gives you a goal to aim for, acts as a measure of your success and crystallizes your vision for life beyond the business.
It also helps you visualize your company with the next person at the helm. Whether you intend to pass your business onto your children, sell to a buyer your M&A team has identified, or liquidate your assets and close the doors, your exit strategy will guide the direction of your company.
2. You will know how to handle unsolicited offers
An exit plan will help you respond to unsolicited offers. Did you know that, according to research by the National Center for the Middle Market, 45% of all sales are opportunistic for the buyers? It can be a big risk to accept an offer in this manner. But having an exit strategy in place means you can recognize if this type offer matches your financial needs.
3. You will understand your company’s value
It may feel like an obvious question, but do you know how much your business is worth? And is that enough to secure your future?
Determining this is more complicated than you would expect. You’ll need to create a detailed record of your recast financials spanning three to five years, identify your intangible assets, and gauge the condition of the market. You will also need to approach optimal buyers, those that will pay a premium for your company based on a strategic fit with theirs.
A thorough evaluation will inform you of your company’s value, but only by combining this with the ambitions laid out in your exit strategy will you understand if you’re on track with your financial goals, or if changes are required to realize your expectations/needs.
4. You will know when you intend to sell
Likewise, your exit strategy will help you determine an end point for your business. That could be one year’s time, five years, or ten years, but regardless, it gives you a timeline to work within, allowing you to concentrate on preparing your business to be buyer ready.