If you have spent years building up a business, the last thing you want to do is see it fail. You may have spent decades pouring every ounce of your energy into creating a successful and thriving company, and that is something you should be incredibly proud of. Sooner or later, all of us need to retire so that we can spend our golden years relaxing and enjoying the rewards of the success we had in our youth. But that business is your baby and you do not want to see it crumble when you step away. Which is exactly why you need a good exit strategy for when the time comes. So, what is an exit strategy, and how do you create one?
What is an exit strategy?
An exit strategy is exactly what it says on the tin – it is a strategy for when the CEO or owner exits the business to ensure the business survives and thrives without them at the helm. They may want to sell the company, sell their share in the company to another employee or external investors, or open it up to purchase by other firms. It is not always due to the CEO retiring either – sometimes they may want to step back to pursue other ventures, or just to take a break before changing career direction.
The problem is many business owners don’t think to create an exit plan until it is almost time for them to step away. At this point everything becomes a rush, and many crucial steps cannot be completed properly. This puts both the business and the business owners’ financial futures at risk and may make it more challenging to sell the business. So, the first tip we have is…
Plan, plan, plan
We generally recommend that business owners start thinking about their exit strategy once their business is well established, stable and growing. You do not have to use it immediately – it can lay dormant in a filing cabinet until you are ready to pull the trigger. But the earlier you plan, the easier and more successful the transition will be. As a rule of thumb you need at least 6-12 months to properly plan for exiting your business.
However, most good exit strategies generally have a 1, 3 and 5-year plan to them. This means that you will have a roadmap in place of things that need to happen in the 5 years before you step down, and plenty of time to do them. This may include things like identifying and testing potential successors, enquiring with professional services about the market, and getting your finances in order, all of which we discuss later on. By creating a 5, 3 and 1-year plan, you are giving your business the best chance for success without you.
Prepare your finances
This is an important step, particularly if you are looking to sell your business on. You need to go through your finances with a fine-tooth comb and make sure everything is correct. Most buyers will want a minimum of 3 years of past financials, some would want more, so talk to your accountant and make sure you get them arranged and audited if necessary. You should also take this chance to plan out your future growth. This means putting together a growth plan and both long- and short-term sales forecasts, so that investors can be confident that your business is profitable and there is room and ability to grow. Having a solid set of figures can make a real difference to your ability to sell the business, and for how much. If you do not know where to start, get in touch to see if we can help.
Choose new leadership
For some business owners this can be a really tough one, but for others it is obvious and simple. This step can only really happen once you have decided to exit the business and you are only a few years away – and that is to choose your successor, or successors. You will need to do this carefully, so take your time – but only you can identify the right type of person to fill your shoes. Once you have someone in mind, start to transfer some of your responsibilities to them while you finalise your plans. This can be done gradually, or it can be done quickly. It also does not have to be just one person – you could fill your role with a leadership team, with responsibilities shared between them. Again, only you will know what will work for your business, but we do recommend you plan out your options and consult with a professional to help you decide.
Make yourself redundant
If you are the key person doing things, even small tasks, you need to start shifting that responsibility onto someone else. This means developing a succession plan for what you do. Part of that will be taken care of by choosing new leadership, but not all. You may want to look into outsourcing certain tasks or hiring a new team to take over some of your responsibilities and give them a chance to prove themselves for at least a year. This will give any future buyers the confidence that the business will not fail without you.
Do your homework
Above all, you need to do your homework. You only get one shot at selling your business, so you need to play it smart. Engage professionals when you need to and seek advice often through the whole process. Remember, selling your business is very different to running your business.
At Purple Lime, we are here to support business owners drive their businesses forward – even if that is without them at the helm. Our team of experts are here to help with every element of your exit strategy planning, from start to finish, along with acting as your outsourced finance director to ensure your finances are in perfect condition for sale. If you would like to know more, please get in touch by emailing hello@purplelime.uk.com or calling us on 01249 263 333.