The Importance of Having a Business Exit Strategy

You have worked many years and extremely hard to get your business to the successful level it is at today. When the day comes for you to retire and ultimately exit your business, what is your plan of action? Do you intend to pass the business along to the next generation, or will you look to exit the business entirely and monetize the value you have built? More importantly, how will your exit strategy coexist with your personal financial plan? Will this strategy have adverse effects on your existing plans or future standard of living? These are all questions that cannot be left to the imagination as there is too much at stake. Preparing an exit strategy can help to insulate you from the many unexpected key factors and variables that may affect your financial future.

A Successful Exit Strategy

A successful exit strategy can require a substantial amount of planning. Whether you are running a small business or large corporate entity, it is very important that you implement some form of strategy so your exit flows as seamlessly as possible. Strategies can differ among industries and business types. It is also very important that the owner weigh the many inherent opportunity costs associated with the different methods of exiting.

Preparing well in advance will help answer the important questions that arise upon exploring the exit from your business. Through your due diligence you will need to determine if you will liquidate your business, sell on the open market, sell directly to an employee or to keep the business within the family. Going through the planning process early on can also provide insight as to how much you would need from the sale of your business in order to maintain an income or asset level consistent with your financial circumstances. (For related reading, see: Top Exit Strategy Tips for Small Businesses.)

Understand How an Exit Strategy Will Affect Your Financial Plan

Before selecting a strategy, you as the business owner must understand the short-term and long-term effects of each individual strategy. You must understand how each one may alter your financial plan. It is also important to understand that no one strategy or plan is “one-size-fits-all.” Each business owner must understand their situation is unique and specialized planning is required to ensure the success of the selected strategy for that individual to be able to meet their future financial goals and needs.

When is the right time to start planning an exit from your business? As with many planning strategies, it is never too early to devise a plan that can save considerable time and headache down the stretch. What if you were to be approached by someone interested in purchasing your business? Would you be equipped to counter or negotiate without a plan? (For related reading, see: Find the Best Buyer for Your Small Business.)

As with many critical financial events that can arise in life, it is crucial to start planning an exit from your business sooner than later. The earlier you begin planning, the more prepared you may be when the time to exit comes to fruition. Business owners between the ages of 45-65, this is something you should start to think about and plan for now. Don’t leave these important decisions to the last minute!

(For related reading, see: Ready to Retire? Here's How to Sell and Close Your Small Business.)

 

This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.