A business is started and established with an aim of continuance, but during the period when it is flourishing and growing there may be some unforeseen occurrences that can enforce its shutdown or the transference of its ownership to a third party. A business exit plan allows a business owner to sell his or her business to a 3rd party and reduce losses in case the business is failing to do well. It also lets them exit a successful business, and make a profit. A well-planned exit strategy works like a safety net and must be included in business financial planning.
Business Exit Strategy
An exit strategy is a simplified approach that is planned well in advance. The reasons for a business ceasing to exist may not always be because of failure or incompetence to carry it through. There may be other reasons for its dissolution such as health problems of the owner, their retirement, another thriving business offer or opportunity, urgent need to raise funds or lack of interest in the business.
Thus, in simple terms, the business exit strategy serves as a safety net for the entrepreneur when they seek to get returns from the business without working in it.
An Ideal Business Exit Strategy
A business exit strategy should not leave one chewing their nails or at their tethered edge with bouts of anxiety. On the contrary, it needs to make sure such a situation does not arise. Therefore, it’s vital that every aspect of the business is well thought out, including the exit plan. An ideal business exit strategy must enable the business owner to emerge with a win-win scenario.
What are the options at hand?
Out of an array of business exit strategies, we have listed down the most viable ones for small business owners. The best one depends on the business’s requirement and the reason for its exit.
1. Informal buyout
Under this option, the business ownership is transferred to a family member, friend or an existing employee. This kind of selling is a friendly closure with easier terms and conditions. It can be passed on to an existing family member as a legacy or the share of the owner can be taken over by a partner.
2. An ‘On sale’ signboard
The business can be sold off to one of the competitors, a larger company or to an interested investor. This can help the business procure a good market price. But this kind of sale is not feasible when the owner decides to sell immediately owing to contingency as it may not fetch fair returns.
3. Empty out slowly
The owner can drain out the business year after year by drawing cash and assets from the business at intervals. This strategy takes the business through a slow and gradual exit.
For small business owners, planning for an exit strategy may not be as easy as it appears on papers for there is an array of emotions attached to their business. It implies that a day may come when they may no longer be at the decision makers. But a skillfully created business exit strategy can protect your future and that of your family and employees.
Do you need advise on how to best plan an exit strategy for your business? Book a free consultation with the experts at FFPCT here – FFPCT Business Finance Consultants