What’s a business exit strategy?
As 2022 comes to an end, perhaps you’re also thinking about letting go of your business. Whether you’re retiring or just moving onto a new chapter, a sound exit strategy is a major part of securing the most returns from the business sale and ensuring a smooth handover.
Whether you’re hands-on or prefer to delegate and take a backseat approach, many business owners forget about an exit strategy until they need one. At this point, creating one is stressful and burdensome. To avoid this, it’s a good idea to have one in place, even if you have no intention of selling for many years. Ideally, an exit strategy (also called a “succession plan”) will be a part of a larger business strategy for your operations as a whole.
What is a business exit strategy?
An exit strategy is a clear plan outlining the steps you’ll take when it’s time to release your business ownership. Unlike being forced to sell due to declining sales or a spiralling market, an exit strategy lets you sell the business on your terms. Ideally, for the right amount of money.
Your exit strategy has a range of variables that need to be taken into account. Personal finances, existing employees, retention of control over your business, tax implications, and profits and losses are all components that have to be considered.
Is an exit strategy all about selling?
Whilst selling a business is the most common component of an exit strategy, it’s not the only reason you might have one. An exit strategy can also outline how you plan to relinquish business ownership through:
- Arranging a buyout from management or partners.
- Family succession planning.
- Sale of shares.
- Making an Initial Public Offering (IPO).
You might also use an exit strategy to outline how you’ll release the control you have over the business, but not the ownership.
Do I “need” an exit strategy?
You only need an exit strategy if you want to control your business's future — which is essentially every business owner! In fact, selling or passing on your business on your own terms through a succession plan can help you make 50 – 100% more compared to taking a passive approach!
A “passive approach” means you don’t have a clear plan in place and are content to let circumstances govern the outcome of your business. Most business owners adopting a passive approach are optimistic that they’ll simply receive an amazing offer for their business at the right time.
This is rarely the case. When it does happen, the offer usually isn’t amazing, but a lack of succession planning means the business owner is forced to accept the offer anyway! Instead, your health, age, market changes, and customer demands determine when, how, and for how much your business will be passed on. There’s a lot left to chance…
How can Ascent Accountants help here?
Great question! We help businesses across Perth with strategic business plans, which include a comprehensive exit strategy.
Contact us to talk about this in more detail — we’d love to help you with a quality succession plan to secure your business’s future.
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