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Selling a Business - Business Insights

What is an exit plan, and why does my business need one?

Starting a business is an exciting life chapter, but that’s not to say there are no risks. Whether it’s new to you or you’ve had plenty of experience in the past, it’s important to carefully consider what you need to ensure that you reach your potential.

Thankfully, an exit plan prepares you for any difficulties you could face in the long run. In this article, we will explore the topic of business exit plans and how they can help you.

What is an exit plan?

A business exit plan is, in simpler terms, a strategy for what will occur when you decide to leave your business, whether for a new venture or simply retiring. Just like you created a plan to start the business, it’s the same thing when you decide to call it quits.

An exit plan allows you to reduce or liquidate your stake in the business and make a profit where possible, limiting your losses. It’s important not to assume that an exit plan is in place solely for failure, as many business owners can start their company with the intent of leaving.

What is an exit plan

What does a business exit plan look like?

There are several strategies you can choose when it comes to your exit, and ultimately, it depends on the reason for leaving and your goals. There’s no time-frame when it comes to an exit plan, as this can depend on a range of things, like investors – however, the preparation allows you to act quickly when you need to.

Merger and acquisition is used when you’re selling your business to a different company or merging, and especially beneficial for start-ups. With this plan, you can negotiate prices and set your boundaries.

Selling your stake to a partner or investor is applicable to those who are not the sole owner of the business, and the buyer is generally someone you are familiar with and trust. The business will typically carry on as normal with few disruptions.

Family succession does what it says on the tin – it allows the business to stay in the family. This way, the new owner will most likely have knowledge of the business, making it a smooth transition.

Acquihire is another strategy where the new owner has bought the business based on the skills and talent of the employees, allowing you to set strong terms and take care of the team.

Management and employee buyouts allow individuals already working for the business to move higher up in their role and take ownership. This type of plan gives you peace of mind knowing the new owner is someone experienced in the company.

Initial public offering (IPO) consists of opening your business to the public and selling shares of stock to shareholders. It’s a challenging plan, but it opens doors for a lot of profit, more than other strategies.

Liquidation is the plan you might resort to if you want to put a complete end to the business. This doesn’t necessarily mean failure, as your next business venture could be on the cards if you opt for liquidation.

Why should you consider an exit plan?

There are several reasons why an exit plan will protect you in the long run if you find yourself facing any business surprises.

You can rest assured knowing you have much more control with an exit plan in place. If your business is making more profit than you expected, you might be eager to sell due to its high value. In this case, the strategy offers you control to take action and makes the ownership transition run smoothly.

It’s a given that your employees are a vital part of your business, so it’s important to protect them too, and this is possible with an exit plan. Employees can rest assured that their job is safe thanks to the ownership transition.

The risk of financial failure is reduced by implementing a business exit plan. Many factors can lead to financial failure, like changes in the market, but any loss may be reduced by moving quickly. You can plan ahead when you want to sell by conducting ongoing research into the market to get an insight into how your business will look in the future and when it’s best to leave.

Taking risks can cause quite a bit of stress when it comes to your business. However, with an exit plan, you will undoubtedly feel at ease for your future and be prepared for any problems that might come your way.

Thinking of selling a business, then book a FREE Business Valuation today!

Sources
www.investopedia.com
corporatefinanceinstitute.com
www.fundera.com 

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