While you might not equate your business exit strategy with a family vacation, it actually helps to think of it like one (metaphorically speaking, of course). You probably wouldn't wait until a couple of weeks before your departure to start planning the trip. You wouldn't hold off until a few days before leaving to let your business know about your plans.
Putting off all that planning until the last minute would be a headache to you, a major stressor to your business, and ultimately a detriment to the overall enjoyment of your vacation. The same thinking applies to your business exit strategy. It takes careful planning, intelligent strategizing, and keen thinking to build an effective business exit strategy for yourself. This is true even if you have no intention of exiting anytime soon. Here's how to get started.
Exiting a Business
Let's say you're wondering: "Why have an exit strategy in the first place?" Well, exit strategies for business owners not only guide the future direction of the business but also protect against risk to entrepreneurs invested in the business. They're a vital part of exiting any business. In short: Why have an exit strategy? To limit your business's losses and maximize your profits in the process.
Obviously, exit strategies for business owners will vary from industry to industry and even from person to person. No matter what, though, this exit strategy should describe to move your business forward on stable, dependable footing without you. This includes considering the business's goals over the long term and outlining ways your successor can smoothly transition toward this next phase for the business.
Some exit strategies for business owners will work better than others. It all depends on what you envision for the future of your business, whether that entails going back to the drawing board, appointing a new type of leadership, or heading in a completely new direction entirely. Whatever you ultimately decide, it should be a decision that prioritizes financial stability and defense against future challenges.
When exiting a business, you can be certain that you won't be the only one impacted by your departure. As such, your ultimate exit strategy should consider everyone with stake in the company — from financial to operational stake and everything in between. Typically, this starts with succession planning.
How to Train Your Successors
When you exit, someone will need to take your place. An effective exit strategy anticipates this transition of power with succession planning. You have some options here. The best succession planning will consider all those options equally, then choose the successor that makes the most sense for the business's future.
If you run your business with a partner (or partners), your succession planning can be as simple as selling your stake in the company to them. This is probably the quickest, most straightforward form of succession planning. It's logical, mess-free, and makes the most sense because your partners likely share the same ideas about the company's future as you do.
Alternatively, if you do not have business partners and serve as your business's sole owner, you will have to take additional steps. Would you like to pass the company on to a family member (such as a child, grandchild, niece, or nephew)? Or would you prefer to hand the reins over to a trusted acquaintance or colleague you feel is well-suited for the job following your departure? Ultimately, the choice is yours, but it's a choice you must make for an effective exit strategy.
It helps to outline all your responsibilities with some organizing documentation that outlines your day-to-day operations. First and foremost, this will help you visualize everything you do daily. Beyond this, it lets you see who in your circle would be the best person for the tasks.
Creating a Surviving Business Plan
A truly effective exit strategy doesn't just ensure a clean way out for you. It also establishes a plan for your business to survive in your absence. Many have found success by turning to their investors for help at this stage. By informing your investors and shareholders of your intent to create an exit strategy, you can collectively outline a strategy for the business's survival.
Ideally, the creation of this surviving business plan should do several key things. First, it should inform investors about how their finances will be impacted. It might sound taboo, but this will be one of the first questions your employees and shareholders will ask following the announcement of your exit.
From there, work with your shareholders and investors to determine where the business should go following your leave. Think about the main exit strategies: keeping the business in the family, selling to a third party or a trusted employee, or liquidating.
Should the business carry on as usual with a new person in your position? Or should it merge with another like-minded company? Would it make more sense for the company to pursue a buyout in your wake, or should it outright liquidate if it's no longer profitable without you? It might be a tough conversation, but it's one that will ultimately ensure a surviving business plan.
Executing Your Succession Plan
If you and your shareholders decide a successor should be named (and you've already gone through the steps of succession planning), it's time to execute your succession plan. This is one of the final steps of exiting a business, making it one of the most important. A very useful tip: you don't have to wait until the day before your departure to hand over control to your successor. Some have seen great success running trials in the lead-up to an exit.
Trial runs are a great way to know with absolute certainty that you've chosen the right successor. Start by handing over smaller but important tasks to your future successor to see how they handle things. Gradually increasing the task load helps show you they can handle it and allows them to more easily integrate into the role without becoming overwhelmed. Executing trial runs at the start of your succession plan is a surefire way to instill peace of mind in you, your financers, your colleagues, and your employees alike. In this way, executing a succession plan can also serve as an invaluable form of training for your successor.
