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Why an Exit Strategy is Important For Your Business

Exit strategy
Posted In: Finance
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Studies have revealed that most small and medium businesses and companies do not have an exit strategy. Exit strategies come in handy when the industry situations are not friendly and if well thought out, exit strategies will allow you to get a better price for your business. An exit strategy does not necessarily mean it has to be used, but rather it is in place in case it is ever needed.

As the term goes, an exit strategy is a plan for leaving your company or business for whatever reason that might be. Whether an owner is interested in selling their business or not, an exit strategy is essential as it helps streamline the process if it ever comes down to it. Furthermore, whether one is not interested in leaving their business, emergencies do happen for instance; poor health, partnership problems, old age, and business failure. You may never plan to leave, but no one can be so sure what the future holds.

A well-thought-out exit strategy can help save the work and hustle involved when leaving your business. A well-planned exit strategy is composed of a few steps. The first step in developing an exit strategy is working out an exit policy and procedure. It basically outlines your thoughts on how you want to exit your company/ business. These thoughts are based on important questions directed on how everything will be handled when the time to exit comes.

Other than financial difficulties, health problems, and economic pressure, the strategy should outline other circumstances under which a sale or a merger might occur. Many circumstances can be put into consideration, you might consider a merger to grow the company, competition might put pressure on the company, or the obvious retirement and other non-emergency situations might occur. Whatever the circumstance, an exit strategy should be put in place to make the exit smooth. It doesn’t matter whether a circumstance is foreseen or not.

The next step is reviewing factors that could jeopardize an exit strategy. For instance, existing agreements with partners, banks, and stakeholders that could influence any final outcomes should be reviewed. Necessary adjustments to these agreements should be prepared. For a smoother process, everyone involved in the decision to sell, legally or on lien conditions should be accommodated squarely into the exit strategy.

Other steps involve determining the actual role players to handle the exit plan and their roles identified when the time comes. It might be any of the partners, shareholders, or key managers. They should be well versed on how to handle negotiations and represent the business during the process. A legal advisor might come in handy to answer and settle legal issues arising and a financial controller or advisor can develop and resolve any financial issues arising. Although the future cannot be predicted, basic daily routines, observations, and trends can answer some uncertain questions in advance.

The exit on its own is a process that needs to follow due diligence on all issues that are critical to any sale or merger. It takes a lot of effort to adhere to the due process and planning it in advance helps settle uncertainty and ensure all issues are addressed. Consider the operations of your businesses and the factors that would compromise the integrity of a sale in advance; agreements with suppliers, contracts with large customers, leases, tax implications, employee agreements, and ownership details. All these are factors can be addressed in an exit plan and they can be controlled to ensure that when the time comes, all matters meets a buyer/merger requirements.

Preparing an exit strategy comes with the requirement to understand the dynamics of the exit process. Having not done it again, it is possible that you can overlook a lot of important considerations. It is advisable that you consult with a Mergers and Acquisition firm or other intermediaries to gain insight and professional help on how to go about it. They will provide samples and answer questions that might be of very much importance.



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