A business exit strategy is necessary to secure a business owner’s future. However, according to William Buck’s Exit Smart Survey Report 2019, three-quarters of business owners (34%) don’t actually have an exit plan.
If you own a business, at some point or another you’re going to need to consider your business exit - even if it’s simply to pass the reins onto a family member. So, be proactive, be prepared, and find out everything you need to know about business exit planning in this article.
If you own a business, at some point or another you’re going to need to consider your business exit - even if it’s simply to pass the reins onto a family member. So, be proactive, be prepared, and find out everything you need to know about business exit planning in this article.
Download the checklist
Use the business exits checklist to ensure your company is healthy and prepared for sale with all the right critical documentation.
What is exit planning?
Exit planning is the process of determining the best route out of your business—whether that be selling it as a going concern, liquidation, or some other type of exit.When to plan your exit strategy
The sooner you start writing your company exit plan, the better. If you want to avoid the risks associated with poor business exit planning, a long-term strategy needs to be taken.William Buck advises that it takes between 3 and 5 years to set up a business for a successful exit. Leave it to the last minute and you’re stopping your company from realizing its true value.
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Types of exit strategies
There are eight common business exit strategies:
- Merger and acquisition exit strategy (M&A deals)
- Selling your stake to a partner or investor
- Family succession
- Acquihires
- Management and employee buyouts (MBO)
- Initial Public Offering (IPO)
- Liquidation
- Bankruptcy
Ultimately, each exit strategy is right for different people, for different reasons. Ambitious entrepreneurs might look at a merger or acquisition, while family succession or MBO could be an attractive option to other business owners.
Find out more about each one here: Types of Exit Strategies
Planning exit strategies for a failing business
Bankruptcy isn’t an exit that you’d find in a business plan. However, it is the last remaining exit strategy for a failing business.A more planned approach might be to liquidate. This involves selling everything at market value and using the revenue to pay off any remaining debt.
For sole proprietors, walking away can be as easy as increasing your personal salary in the years preceding your exit, paying yourself bonuses, settling any debt, and then liquidating any remaining assets. Just be warned that with the larger income comes a larger tax bill.
![Planning exit strategies for a failing business](/getmedia/91d2f42c-8074-4a6e-8f17-7942e9232392/2022_Business_Exits_Stock_Image_Woman_Laptop_Night.jpg?width=780)
How to prepare an exit strategy
Step 1: Determine length of involvement
The first step in business exit planning should be to ask yourself, how long do you want to stay involved in the business? If you envision your involvement being long-term, you might plan to liquidate or sell your shares. If you’re only in it for the short-term, you could merge, be acquired, or even IPO.
Step 2: Assess financial goals
Next, ask yourself, what are your financial goals? These will certainly impact which exit strategy you choose.
Step 3: Identify creditors requiring payment
Do you have investors or creditors to pay? If you do, you’ll need to make sure those are covered as part of your exit planning.
Step 4: Research different types of exits
Make sure you research the pros and cons of different types of exit strategies before you begin writing your exit plan.
Step 5: Write your exit plan
Once you’ve chosen the exit strategy for you, be sure to include detail on the following, and what will happen to them as part of the exit strategy, in your business plan. This is important for business continuity.
- Your personal & business financials
- Your investors and stakeholders
- New leadership
- Your employees
- Your customers
Find out more about selling your business: How do you sell a business