Planning an exit strategy should be a priority for any business owner. Yet many do not take the time to create their exit plan, which can be a regrettable oversight. However, even if you are not planning to sell or exit any time soon, it is still a smart move to have an exit plan in place for several reasons.
A solid exit strategy can:
- Protect the current value of the company
- Enhance its future value
- Create strategic direction for growth
- Keep the business on the path you intended
- Help to generate potential income for your retirement
- Pave the way for a smooth transition for your management team
- Reduce any tax impacts on your estate
If your company is successful, planning your exit can help you make a substantial profit. If your company is struggling, an exit strategy can help you limit your losses. Remember, it is likely that the majority of your net worth is tied up in your company, and it is probably your biggest asset. You want it to be worth as much as possible regardless of when you plan to exit. With so much invested in your business, there is no aspect of it that you should take lightly. Planning now means you can leave the company on your own terms when you are ready. Not only is that a pretty powerful notion, but it can also provide you with enormous peace of mind. Further, an exit strategy can plan for worst-case scenarios that you may not be ready for, such as illness or death.
After all the events of 2020, exit planning should be of obvious importance for all business owners in 2021. The COVID-19 pandemic demonstrated that no one knows what can happen at any given time and how it can affect businesses and economies. Maybe the impacts of 2020 have put you in the position to exit your business sooner than you ever anticipated. Or the pandemic may have boosted your business, depending on the nature of your company. Either way, there has truly never been a better time to get exit planning underway.
The pandemic also created several new trends that can impact value-increasing strategies, such as rapid digitalization, work-from-home models, shifts in priorities, and the surge in the use of telemedicine. Lessons learned during the pandemic could be used to find ways to create more value in the future that should be part of your exit plan today.
There are different options for an exit strategy. For example, you can sell to an outside buyer, sell to an inside buyer, sell part of the business, have family take over, or liquidate the business altogether or over time. The exit planning process can help you decide which method may be suitable for you.
Exiting a company is complicated because of all the financial, legal, tax, estate, operational, family, and legacy considerations. Enlisting professional assistance from an M&A expert can help you navigate the process, make sure nothing gets overlooked, and prevent you from making costly mistakes. Their expertise can also make the process less stressful for you, connect you with quality buyers, and help you maximize the value of your business in a sale.
Another significant benefit that an M&A consultant provides is that they know how to view your company how a buyer would, making it possible for it to be seen in the very best light, which is critical for a company valuation. Many business owners do not know the value in professional exit planning because they do not view their company from the perspective of a potential buyer. This often results in a significant loss of value when exiting the business. You need to have a realistic understanding of what your business is worth in the market in order to garner the most value for it. Remember that value-increasing strategies take a great deal of planning and need adequate time to reach their full potential, so it is never too soon to start exit planning. It can make all the difference in the future of your company and your retirement.