What Exactly is an Exit Strategy?

 

The Official Definition

If you Google the above question, Wikipedia provides you with an excellent definition:

“An exit strategy is a means of leaving one's current situation, either after a predetermined objective has been achieved, or as a strategy to mitigate failure.[1][2] An organisation or individual without an exit strategy may be in a quagmire.”

I include the quote above as it not only succinctly explains what the term “Exit Strategy” means but also goes on to explain the rather dire consequences of not having one planned out in advance of the event.

Reduced Price for Your Business at Exit

At Boss Equity, this is something we have observed, time & again, over the past 2 decades - SME entrepreneurs, who have been so busy setting up and running their business that they have omitted the critical element of planning for their exit.

For many, the idea of an exit is some years away and so they put off making proper plans for it.

But, fail to plan your exit strategy and you’re planning to fail

– Not that you’ll fail to sell your business at the allotted time but you will not achieve the best sale price; the well-deserved fruits of your years of (often very hard) labour.

Many business owners don’t realise that creating an exit strategy from the outset, adds real value to their business - both in the eyes of potential investors and for the daily running of the business.

With an end goal in place, the business will automatically be run so that all processes and actions are aligned with that goal. This results in a more cohesive and efficient business ongoing, as well as a better price at exit. Win-win.

“We’re Not Thinking of Selling for Three Years”

If we’ve heard this once, we’ve heard it 10,000 times!

Regardless of when you think you may like to exit your business, you need to start planning for it NOW!

Of the companies who have told us they will sell “in three years”, when that three years is up, many of them are still repeating that they will exit “in three years” – And so it continues. They may as well say “mañana” as it too, never comes..

Adopt a Strategic Approach

It is critical you adopt a strategic approach to selling your business. Yet, very few SME companies truly grasp the importance of this first step.

And, of those who do, relatively few really conquer it.

The critical strategy planning step is often omitted as, having decided it’s time to gear up for a sale, businesses rush ahead to steps three four or five - often only a few months prior to the date they want to be sold. 

If you want to achieve best price at exit, this is too little - And way too late!         

Things to Consider When Creating Your Exit Plan

  1. Be sure all stakeholders are aligned with the decision to sell

If you’ve created & communicated your exit strategy blueprint well in advance of the event, all stakeholders will be aware of the likely exit date and will be planning towards it themselves. Contrast this, with a haphazard, poorly communicated, last minute plan to exit and stakeholder chaos could ensue, pausing or even totally undermining any sale.

  1. Is the timing right?
    To achieve best price at exit, you need an in-depth knowledge of market trends and drivers, both in your own sector and adjacent, complementary sectors. It’s also critical that your internal processes, company financial health and performance are at the optimal level to attract investment.
     
  2. Is your business primed & ready for sale?
    - You need to consider succession planning. If you leave the company, can it be run   without you? Ensure the key sales relationships don’t rely on the exiting executives.
    - Ensure you have management systems in place to make the takeover painless and mitigate against loss of productivity, company IP and key expertise.
    - Ensure you also map out clearly for the new owner how the business will provide them with a return on their investment. Give details of growth and profit that will increase the value of the business beyond its current worth.
     
  3. Don’t overlook the small things
    Pay attention to the small details that may scupper a deal at the 11th hour.  Things such as misaligned stakeholder expectations, errors in the process, lack of clarity on growth projections or poorly maintained processes can all cause a deal to stumble and can cause extreme angst for all parties, costing you time and potentially money, via a reduced sale price, right at the critical moment of finalising the deal.

It's Not Over Till the Fat Lady Sings

If you manage to get your exit strategy, growth plan, shareholder alignment, processes and systems all  set up and running smoothly, well ahead of your sale, you’ll be streets ahead of the vast majority of SME’s at exit.

But remember, with the sale of any business, it really isn’t over until the fat lady sings – and she may stumble a few times on her way to the final curtain call.

You can mitigate against this uncertainty by being extra well-prepared - all ducks pointing in the same direction. 

If you’d like to book a confidential call to discuss your strategic exit plan, please click here