The Exit Strategy: An Essential Step in Successful Business Planning

By: Beth Slagle

Many busy small-business owners spend all of their time thinking about the here and now, with little focus on the future.  However, the long-term survival of your business – as well as your own retirement security – depends on establishing a realistic and workable exit strategy. Planning allows you to control different aspects of your business.  The more you plan, the more you can control.  Less planning means that you run the risk of letting some other factor influence or control your decisions.  And that is precisely why exit strategies need to be planned — so that you (as opposed to a third party) make decisions regarding your or your company’s future instead of someone else deciding for you.

Succession is a popular option with business owners who have children.  Owners desiring a family succession plan aim to get their children involved in the business from an early age to increase the probability that they might want to take over the business down the road.  However, owners need to be mindful that there is no guarantee that their children will want to run the operations when the time comes and may have to have an alternative succession.

Selling your business is another option.  This can be accomplished through an internal management buyout, an employee buyout or via an external sale to an individual or entity.  Most businesses are purchased because they possess a particular strategic advantage.  In other words, the business has to be an attractive investment since the buyer is essentially purchasing the rights to the future cash flow generated by the business.  Planning for a successful sale should begin years before the actual transaction and needs to have all or at least the potential for all of the following criteria:  (1) continuous profit; (2) money making products or services; (3) a solid customer base; and (4) business assets in good condition.

Simply closing the business is also a viable choice in some circumstances.  Business owners or sole proprietors usually decide to close their doors when:

• A business owner has to retire and all other exit options are not viable.

• A business is too dependent on a certain skill the owner possesses rendering it unfeasible to hand over the reigns to a family member or buyer.

• No one is interested in taking over or buying the business.

Before a business is allowed to close, it must first meet all legal requirements, such as paying off creditor liabilities, dissolving the business entity, and settling any outstanding tax obligations. All too often, after settling the debts and selling assets, the business owner is not left with much.  In addition, liquidation will destroy the value of the business reputation, business links and client lists which took years to build.  Nonetheless, this is the most straightforward exit strategy, requiring the least forward planning and preparation and, if done properly, can be a satisfying conclusion to a rewarding entrepreneurial career.

Exit strategies are your way of planning and controlling your eventual departure from the business.  While there is something to be said for living in the moment, when it comes to business, it is essential to recognize that, at some point, you will exit your company.  If you start laying the groundwork now to determine your best departure strategy, it will enable you to control the who, what, when, how and where when the time for exit ultimately arrives.

Beth Slagle, Esquire – Attorney – Meyer, Unkovic & Scott and BizChicks Founder/CEO bas@muslaw.com or beth.slagle@bizchicks.org or 412.456.2890