The Importance of a Business Exit Plan

Did you know that you don’t have to be a business owner to have a business exit plan? It’s true!!!

Though the term “business exit” is generally understood to be when a business owner wishes to leave their business (whether by retirement or by selling it), it can also apply to an employee with retirement/stock options/other benefits through their place of employment who may plan to transition to another company. 

If you’re a business owner, you’ve probably given a lot of thought to your retirement planning and how to make them truly live up to the term “the golden years”. You want to leave on your own terms.

Having a well-thought out blueprint of how to make that transition as simple and painless as possible should be highly recommended by any comprehensive financial advisor.

But, if you’re an employee who may want to change companies at some point in your career, you should also have a plan for that, too.

What business exit planning is

Do you remember when Google bought YouTube for a whopping $1.65 billion? YouTube users barely saw a hiccup in service. The reason? The acquisition plan was solid - and an acquisition is a type of business exit planning.

A business exit plan is your contingency plan to transfer, liquidate or dispose of your business assets. Many reasons exist for a business exit plan, such as retirement, acquisitions, Initial Public Offering (IPO), legal reasons, family succession, buy-out possibilities, bankruptcy/liquidation, changes in your personal life that are significant (like divorce) or severe market conditions that may affect your decision to keep owning your business. 

Examples of business exit plans

Every business should plan for the best and the worst, so we’ll quickly go over two situations that fall in each camp; a positive change and a negative change.

1. An acquisition; whether your business is seen as a competitor or not, a bigger business may want to buy you out. Having a plan in place will help guide you through those negotiations to make sure you get exactly what you want out of it.
2. A failing business; if your business is not doing well, your business exit plan can help you limit your losses and let your investors (if you have any) cash out of their investment.

Not a business owner? Exit plans still apply!

If you’re not a business owner, having a plan to leave your company is important, especially if you have a 401K, health plan or stock options. Regardless of why you may leave (retirement, illness, etc.) you have to determine how to transfer all of these or how they will be impacted when you leave your position. You want to plan for every good and bad thing that may happen in your transition. 

Additionally, if you’re in a management position or of some significant place in your company, planning how your exit will affect your colleagues both internally and externally is worth considering. 

Should start-ups have a business exit strategy?

It may seem strange to plan an exit before you even open your business, but just like with estate planning, it’s a prudent decision to handle important matters on your own terms before someone or something has to make them for you.

If you’re looking for VC funding or any kind of investor, you’ll quickly hear that most VC’s require that a business exit plan be carefully determined before they invest a dime. Ideally, you want to have this developed before you officially green-light your business. How your plan is developed will significantly influence decisions in your business.

Which business exit plan is best for you?

This is a loaded question that only seasoned professionals can help you answer. A comprehensive team composed of legal professionals, financial advisors and accountants can help you determine your needs based on your goals. Your plan will largely depend on the kind of business you’ll be running and how big it is. 

Businesses evolve constantly, and what your plan is right now for the next 5-10 years may very well change. Plan for each possibility.

We can help you develop your business exit plan strategy

If you’re thinking about your future for your business/career, we can help to make sure all of your I’s are dotted and your T’s are crossed. We’ll make sure to review your financials regularly, discuss strategies to help you hit your desired financial goals, help you prepare for the best-of-the-best scenarios as well as the worst-case. 

Let our team of seasoned professionals care for your business the way we care for ours. Give us a call today with any questions or for a meeting.