Common Questions & Concerns About Exit Strategies
Common Questions & Concerns
About Exit Strategies
The term “Exit Strategy” is often associated with “failure” or “planning for the worst,” but that couldn’t be further from the truth! Having one in place is helpful for making future decisions, because it helps you develop an end goal that you can work towards. Over the years we’ve worked with many business owners and helped them figure out their exit strategies and options, and this article will cover some of the questions and concerns we’ve answered for our clients!
- “Won’t an exit strategy limit my options?” Not at all, you can have more than one in place! Think of having an “ideal exit” and then decide what your Plan B is in case circumstances change. They give you a better idea of what your end-goals are and they’re a part of planning out your business. You should ask yourself goal-oriented questions: what is it that you want your company to achieve? Do you eventually plan to sell it off to shareholders, sell the business itself entirely, or leave it to family members? These are things that need to be carefully considered and planned for.
- “I’m not ready to retire.” Having an exit strategy in place does not mean you have to fly the coop right away – you’re just preparing yourself for when that day eventually comes. But let’s be honest, you’re not immortal and at some point you will have to retire whether it’s next month, next year, or even beyond the next decade. At some point in your career you to move onto the next stage in life that makes all the hard work worth it.
If you choose, you can still be active in the business as a stockholder! You might prefer to do it more from the sidelines, (like at the beach with a piña colada with your toes in the sand).
- “But really, I’m never going to retire; I love my job! So why do I need to plan for it?” Ok, got it! However, consider this: do you know what will happen tomorrow with 100% guarantee? Life is unpredictable, and we can never plan precisely, but we can make choices that help prepare for the “what if’s.”
What if tomorrow your health takes an unexpected turn for the worse? What if your business isn’t going in the direction you want it to? What if your daughter/son decides they do not want to take over the family business? What if you don’t feel the same passion for your field twenty years into the future?
- “What about my employees?” An exit strategy isn’t just for the business owners’ benefit! You have to consider the welfare of employees and investors as well. If unpredictable circumstances arise, and the owner is no longer able to lead the employees, it’s important to make sure their positions will be secured, and the business can continue to prosper with the team still intact. Sometimes you can even look to the employees to take over! They can be offered equity options and someday buy your share. They know the business, care about the company, and learned from the best: You.
- “My exit strategy is to just sell my company off when I’m ready to move on.” Awesome! We support that decision from a Business Broker’s perspective, but don’t forget that a business can lose or gain value at any time.
The market is unpredictable and constantly changing. If you don’t sell at the right time and with the right investors, you may end up losing out on a lucrative opportunity and be forced to settle. If your goal is to eventually sell, it’s important to leave that door open for the best opportunity, because you never know when the right opportunity to sell will arise. Make sure all the financials and administrative documents are organized right from the start. Ask yourself this, if someone came to you tomorrow and is ready to meet your requirements for purchase, would you be able to present all the necessary documents to go through with the sale?
If you have a goal in mind for how much you’d like to eventually sell your business for, you need to make sure the profit and earning margins justify the asking price. Monitor your business’ financials and make appropriate changes to increase the value! It’s beneficial to remain in contact with a business broker, accountant, or consultant to make sure your company stays on the right track.
Aside from just the financials, also keep in mind what other circumstance will appeal to or throw off your future buyers. It won’t be easy to sell if the majority of client relationships end when the current owner leaves. You may be the head of the company, but potential buyers will be reluctant to buy it if the clients are attached and loyal to you, and not the company itself.
Having an exit strategy in place is important and should be in your business plan before you even begin your business. Strategies can change, but as long as you have goals and options to consider, you can be prepared to face the unpredictable. It’s not too late to formulate your exit, and Elite Business Brokerage is here to help you through every step!