What the devil is an exit plan? Simply stated, it's a plan to sell, phase out, merge, transfer ownership or otherwise dispose of your business. Should you have one? Unless you plan to live forever and keep doing what you are doing on a daily basis for that time, an exit plan would seem like a good idea.
Why? There are many reasons. Most people get older over time. During this inevitable process, they frequently get tired of doing the same thing... bored is the expression. They sometimes just get tired, or get sick, or have a major life crisis like the loss of a loved one. Sometimes they just die. Whatever the reason, everyone reaches the point when he or she will no longer run the business. Before that time arrives, an exit plan may well contribute to an orderly and profitable disposition of your business.
The highest price available for most medium sized companies is usually achieved when the owner is around to assist in the transition to a new owner. The lowest price available for that same business is immediately after the owner dies or becomes totally incapacitated.
Not everyone needs a formal exit plan. However, everyone needs to know what will happen when they no longer go to work. Many owners groom family members to take over the business. That is an exit plan. Many owners intend to liquidate and close the business and this is sometimes a practical plan.
The broad issue which we wish to address here is a formal exit strategy for viable businesses which should logically continue beyond their owner's mortality and which have value beyond the liquidation proceeds of their tangible assets.
It is the practice of all investors of venture capital funds to have a five year exit plan. That plan may be revised if necessary, but it is always a five year strategy. It provides the benchmark against progress towards that goal can be measured.
Every business owner should have at least a five year exit plan. For many owners, that time frame should be much shorter. People well past the normal retirement age and those who have had their first (or second) heart attack, need a shorter time frame for this exit plan.
Some of the questions that are helpful to ask in the preparation of your plan are:
These additional questions and considerations may be valuable:
In developing an exit strategy, the key is to make decisions based on facts. What do you want to do? When do you want to do it? What resources will you need to do it? What resources are currently available? How can you structure your affairs to ensure that the funds will be available? How do you liquefy your investments to provide cash to do what you want to do? When is the right time to start the process? These are a few of the questions that should be thought out. While the first few questions can only be answered by you (and your spouse), the last few probably need the input of professional advisors.
Based on the fact that one of your largest investments is your business, it is logical to get a good opinion of value on that asset's value. What you want is irrelevant. What your brother in law's third cousin said he sold his business for is also irrelevant. The price that can realistically be achieved by properly marketing your business to a large group of reasonably intelligent potential owners is what matters. The market sets the price! If the current price is not consistent with what you need to achieve your goals, then your options are to take corrective action now that will result in the price being suitable or to adjust your goals. Hoping to find a rich idiot the week before you want to retire is foolhardy at best.
In seeking out this opinion of value for your business, it is best to go to someone who is close to the market. Remembering that it is the market that ultimately sets the price, you are wise to get an independent, objective view to how the market would perceive your business.
Once all the relevant information has been assembled, you can start to define how you want to achieve your personal goals. Once you have defined your exit strategy, you can proceed on and run your business. When your plan says the time is right, you are in control of the process.