Exit Planning - An important business practice

| 6 minute read
Andrew Martin
Author Andrew Martin
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Article 1 in our Exit Planning series
Planning a successful exit from a business is one of the most important decisions an owner will ever make. It is also one of the most challenging.

There is no single template or process for a successful exit. Selling a business is not a foregone conclusion with these odds stacked against you:
  • Only 20%-30% of businesses manage to sell [1]
  • If they are sold, 75% of business owners profoundly regret it 12 months later. [2]

There are many reasons for this, with challenges lined up at the beginning, middle and end of the process. Some of the challenges we have seen in our clients include:

Unsure how to proceed: Often the outgoing owner does not know where to start, is confused on how to build more value into the business to get the best possible price and may not have considered how life will look post-exit.

Needing to play the long game: Exit planning requires setting up the business in a way that is transferrable, so it is attractive to new owners who will want to pick it up and run with it. Setting up the business so that it will run without your direct input takes time. Even after exiting, the new owners may need you to hang around for a while.

Getting emotional: Letting go is never easy, no matter the reward. Owners nurture their business from day one. It is their baby, and with so much at stake it is hard to think objectively throughout the sale process.

Letting go of your legacy: Mid-sized businesses are a product of an owner’s hard work and the idea of selling or seeing someone else at the helm can be dauting. For many departing owners, their legacy is tied to the business and preserving it is as important as the financial transaction itself.

Deciding on your future:  What do you want from the exit? Are you looking for a quiet departure with all debts paid or crossing fingers for a hefty offer that enables you to drop anchor in the Caribbean? Or will a modest profit do – to help you to take on the next business challenge? 
With owners of mid-sized businesses so focused on growth and success, they often lack time to implement a formalised exit plan. What owner really has the time to sit down and work out where they need to be in ten years’ time? It is a frequent problem.

The reality is that a robust exit strategy is a business asset, to be integrated into the business as soon as possible and treated as an essential component in the overarching business strategy. It will shape the businesses direction. You can’t get where you want to be if you do not know where you are going.

Just like the businesses themselves, exits come in all shapes and sizes, bringing their own set of difficulties. The pandemic has brought with it a whole new set of business changes and shaped a chaotic and unpredictable landscape – more than 70% of businesses operating today will be closed in ten years and 57% do not make it past five.

Even if an owner does not intend to sell today, it pays to start formulating an exit plan immediately. It may not seem urgent now, but it will dominate your thinking soon enough. The prepared owner is setting themselves up to maximise their exit opportunity.

What is a successful exit strategy? 
A successful exit strategy simply means that you have planned the transition and are ready to take advantage of the good opportunities being presented. It is a perfect balance of identifying and fulfilling all your personal, financial, and business goals as you prepare for the next stage in your life.

At times, the process will seem overly complex, but it does not have to be and can be broken into two parts:
  1. Preparing the owner and the business for sale; and
  2. Focusing on the business sale process
Once an owner has made the huge decision to exit, they need to work hard to take all subjectivity out of the equation. The best way is to find the strategists who know the right questions to ask and can provide them with the information and guidance they need to find the answers.

The exit process may be complex and overwhelming, but it is not broken. Owners simply need a helping hand along the way. 
[2] Exit Planning Institute: State of Owner Readiness report 2019

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