Seven Steps Every Business Exit Strategy Should Include

Whether you’re preparing for retirement or seeking new opportunities, having a well-crafted exit strategy is crucial when it comes to successfully selling your online business. From maximizing value to minimizing risks, this article discusses the key elements that should be top of mind when planning your exit. 

In the following sections, we address several important topics, including:

• What a business exit strategy is
• Why it’s important to have an effective business exit strategy
• The seven key elements every exit strategy should include
• Why it’s important to plan ahead when preparing to sell your online business

Related Article: Selling and Business Taxes: What to Consider When Planning Your Exit

What Is a Business Exit Strategy?

Successful exits don’t happen by accident. For the most part, every entrepreneur who achieves a substantial profit when selling their business has created a succession plan and implemented a cohesive exit strategy long before they put their business on the market.

You wouldn’t drive to a new city without first establishing your route. Likewise, as a business owner, it doesn’t make sense to sell your business without a road map to achieve your exit goals.

A business exit strategy is a plan that you develop to help you achieve the type of exit you desire. You can think of it as your exit blueprint. It takes into account where your business is in the present moment, where you want it to be when you sell it, and the specific steps you need to take in order to get there. It should include goals, actionable steps, and a timeline.

“Successful exits very rarely happen by accident, if ever.”

Why Is a Business Exit Strategy Important?

Successful business exit strategies will help you:

• Build a more profitable and streamlined business
• Attract more interested buyers and create competition
• Facilitate the selling process
• Achieve a higher sale price
• Win more-favorable deal terms

Build a more profitable and streamlined business

Your exit strategy is about more than just the end goal of achieving a successful sale. In the shorter term, an effective exit strategy will help you maximize profits and build a more streamlined business while it is still under your ownership. This can increase your income and make your business easier to manage.

Attract more interested buyers and create competition

A profitable and well-run business naturally attracts more interested buyers when you do decide it’s time to sell your company. Having more interested buyers translates into increased buyer competition for your business. As a business owner, increased competition amongst buyers helps in several ways during the exit process.

Facilitate the selling process

When you have multiple interested buyers, it gives you more power during negotiations. Buyers will be less likely to raise issues when they know that other parties could swoop in. This helps to remove sticking points and allows for a smoother selling process. Given that the exit process can be stressful even in the best of circumstances, anything that makes it easier to manage is welcome indeed.

“When you have multiple interested buyers, it gives you more power during negotiations.”

Achieve a higher sale price

If you have created a successful exit plan and implemented it faithfully, the value of your business will rise accordingly. Healthier and more profitable businesses naturally receive higher valuations.

At the same time, increased competition from interested buyers can further raise the final amount that your business sells for. Given that your business is likely one of your most valuable assets, it makes sense to maximize the payout you receive when you do sell.

At times, the difference in value can be striking. For example, would you rather sell a business prematurely for $750,000, or put in another 12–18 months of hard work and sell it when it is fully ready for $1,500,000? While not every exit plan will double your business’s value in a year and a half, you get the point: being patient and implementing an exit strategy can help you achieve a more successful future.

Win more-favorable deal terms

A successful exit is about much more than achieving a high purchase price. The deal terms that you walk away with will have a large impact on your post-sale life. By creating a more profitable and streamlined company and attracting more buyer competition, you have a larger say over the agreed-upon deal terms.

One of the most important things to consider is how the deal will be financed. Will the buyer pay cash in full at the time of closing, or will payments be staggered over the course of several years? Will you stay involved in operations after you are no longer the business owner, or will there be a clean break for you?

These represent just a few of the questions you will need to negotiate with the buyer. There are no right or wrong answers, just your preferences. However, a good exit plan will provide you with more leverage to help you achieve deal terms that meet your goals.

“A successful exit is about much more than achieving a high purchase price.”

Seven Key Steps Every Successful Exit Strategy Should Have

For most businesses, it is recommended that you leave yourself 12-24 months to prepare for your exit. By doing so, you have ample time to identify, plan, and implement all appropriate optimizations.

The following seven steps will help you make the most of your pre-exit preparation, allowing you to achieve a more successful exit. 

1. Find a qualified business Advisor

First, it is a good idea to find a qualified business Advisor who is well versed in mergers and acquisitions. From valuing your company to creating your exit strategy and navigating the exit process, the right Advisor will help you every step of the way. While they do take a fee as a percentage of the proceeds from the sale, the value they bring to the table should more than make up for their added cost.

2. Get a valuation

Once you have chosen an Advisor, they will provide you with a detailed valuation of your company. This will include its current dollar value as well as an explanation for the driving factors behind its value. This explanation will be the foundation for creating your optimization plan.

3. Create an optimization plan

If your business is in tip-top shape and fully ready to sell, you may not need to create and implement an optimization plan. However, many business owners would benefit from carefully creating a thorough optimization plan.

Your optimization plan, or exit plan, will take into account the current strengths and weaknesses of your company as outlined in your valuation. From there, you can create a road map to address weaknesses and highlight business strengths.

Your exit plan should include actionable steps for how you plan to achieve your objectives. In addition, it should follow a clear (and realistic) timeline. Different business exit strategies will have different required steps. Choose your plan based on your goals as a business owner and the specific needs of your company.

4. Drive growth

Businesses that exhibit strong past and current growth are more attractive to prospective buyers. Thus, strong growth trends help you achieve a more successful exit. Assess your company’s growth and implement pro-growth policies as needed.

5. Minimize risk

The more risky a company is, the less attractive it will be to potential buyers. As such, risk has an inverse relationship with company value, all other things being equal. Take time to assess the areas of your business that incur risk and implement changes to mitigate those risks.

6. Implement clear documentation practices

Prospective buyers are ideally looking for a company that has clear and orderly documentation. This includes financial records, articles of incorporation, standard operating procedures, supplier and third-party relationships, and more.

Depending on the state of your documentation, your business exit strategy may need to contain a plan to optimize your documentation.

7. Increase transferability

Transferability refers to the ease with which your business can be transferred to a new owner without any significant changes or negatively impacting its performance. If your business plan can’t be easily transferred, you will want to address this as part of your exit strategy.

How Much Time Should You Leave to Implement Your Exit Strategy?

Any worthwhile exit strategy takes time to formulate, implement, and bear results. Even if you have the best exit strategy in the world, it won’t be worth anything if you don’t leave yourself time to implement it.

It is recommended to start planning and implementing your exit strategy 12–24 months before you want to sell your company. This will help you make strategic decisions and ensure that you have the best shot at selling your company for maximum value.

Not everyone has the luxury of waiting so long before selling, however. You may need to cash out now to free up cash for personal obligations or goals, or you may want to gain more control over your time to pursue other business opportunities. But if you do have the luxury of choosing when you sell your company, it is best to start preparing early in order to leave yourself ample time to plan your exit.

“It is recommended to start planning and implementing your exit strategy 12–24 months before you want to sell your company.”

Conclusion

By planning ahead and implementing a cohesive business exit strategy, you can help to create a more profitable and streamlined business, attract more buyers, achieve a higher sale price, and win more favorable deal terms when you do decide to sell.