Planning Your Business Exit Strategy

Include a Management Succession Plan

Business exit strategy planning is often overlooked by business owners until it's time to go. Your exit strategy needs to include a management succession plan. Also use free business valuations to build a price or value.

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Most business owners don't think about their business exit strategy at the time that they startup their businesses.

But you should.

And if you've been running your business for a number of years and you haven't planned your exit (which may be 20 years or more in the future), do so now.

Even when writing a fairly simple business plan, you are usually focused on starting up a new business or growing an existing business, not on your business exit strategy. But it's the best time to plan your exit.

Why? Because if you don't plan your business exit strategy now, you will find it much more difficult to leave later. Include your business exit strategy in your business plan outline checklist.

Business Exit Strategy and Management Succession Plan

• Retirement. If you've worked for a number of years, there will come a point in time when you will want to retire or redirect your energy to other interests.
• Partnership conflicts. The dating/ engagement/ marriage/ honeymoon/ stress/counseling/ divorce analogy works here: When you started up your business with a partner or partners, you likely all had similar goals in mind. However as each of you grew, and as the business evolved, it is possible (much like a marriage) for the business partnership to develop issues and conflicts that cannot be resolved.

  How is your business structured (understand shareholders definition - who owns what, what type of shares, etc.)? You need to be clear on the ownership (unless you are the sole owner) as it relates to selling and/or exiting the business).

  First, work on resolving the issues; there are the advantages of outsourcing - hire a business coach to work with you. But if you have given a serious effort to resolving the conflict, and still have been unable to do so, then one, or all, of you will need or want to exit the business. This process is much like a divorce. And it can be as messy as a divorce if you haven't planned your exit strategy up front.

  Partners may not always agree, or may develop competing priorities. Build a strategy into your shareholder agreements up front. Understand your shareholders definition and structure: if your business structure is not a shareholder structure, make sure that, at least, you have a notarized agreement of how you will resolve disputes, and exit or dissolve the business.

  Partnership issues could also mean a spousal break-up where both spouses work in the company; that could be a challenging and emotional event unless prior to starting up your business, or now, you build an equitable exit plan for both or either one of you. Other partnership exits could be family members.

  Remember that partnership disputes can be challenging for you to overcome, but also challenging for the business to overcome. Plan in advance of your partnership, how you will handle dispute resolution.

  You may not have any disagreements but one of the partners wants to move on and exit the company. How will you handle this? If you discuss this in advance, you will minimize future problems.

• Illness or Disability. If health issues are a factor, find a way to exit or at least find a way to take a break from work. Ensure that you have an insurance policy to cover illness or disability that might require you to leave your business temporarily or permanently. Have a management succession plan ready. (A management succession plan needs to be planned under all circumstances: who are you training to step in and up?)
• Death. Most often death is not a planned event. But what happens to your business should you die, can be planned. Part of the plan must be to have in place a solid life insurance policy made out to the business (if you plan it to go on without you) and likely a 'keyman' insurance policy.(Sorry but it's called keyman by the insurance industry - a throwback to many, many years ago). The definition of key personnel is an individual(s) whose injury or death would have a significant impact on the business' operations.
• Selling a profitable business. Congratulations, you've made a success of your business and you'd like to sell while you can get a good price. Contract a professional firm to do a business valuation on your business. Build a strategic plan to project the next three or five years to share with prospective buyers.
• Selling an unprofitable business. Unfortunately, if your business is unprofitable it will be a challenge to sell, even if you desperately want out. You will still need to do a business valuation on your business and you will need to put together a rationale for why someone else could do better with the business than you (for example, if you are cash poor and your business has been cash starved which is the primary reason for failure, look to sell to someone who can inject cash into the company).
• New Venture. You have a new venture or a new idea you want to pursue and you need to exit your business so you can focus on the new one. In this instance, you may be able to sell to a partner (if you have one) or to an employee capable of, and interested in, taking on and managing the business.

Your business exit strategy should include a copy of your buy/sell agreement (if your company is incorporated and has more than one shareholder) or a copy of your partnership agreement. Incorporating your company can protect you and your partners and your business, but there are costs to incorporating.

When you're ready to exit, make sure that you get a valuation of your business before you set a price. You can access free business valuations to run some comparisons - often those valuations are done by companies who will want to sell your business for you.

Even with a business exit strategy plan in place (which should be updated annually along with your business plan), try to time your exit well (company doing well, market doing well). And then go (on to better things), don't linger on and on, and never let go.

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