When starting a new business, most aspiring entrepreneurs focus on the immediate tasks required to build a successful venture.
A business plan is a crucial document that in essence outlines what it will take to make a business idea successful.
However, one aspect of business planning that is often overlooked is how to end the business.
This exit strategy can be just as important as how to start a business and a well thought-out exit strategy can help you to not only raise money for your business but better understand your long-term goals and ambitions for your business.
Why you need an exit strategy
Everyone exits from their business sooner or later, whether by choice or through the course of nature.
To maximize the value you get from your business, it is essential to plan for this occurrence. This will help you to:
• Shape your business into the ideal shape to maximize its value to you once you exit;
• Groom successors – especially if it is a family business;
• Attract investors and raise financing if required;
• Exit at a time of your choosing.
Ideally, you should include an exit strategy in your start-up business plan and review and revise this strategy regularly as your business grows and its market changes.
Exit option: family succession
The desire to leave a valuable asset, such as a successful business, to your heirs is often a driving motivation in a family business.
Getting them involved early on will provide them with insight and an in-depth understanding of how things work and what it takes to be successful.
It will also help them to determine if they are interested in the business and to decide whether that is the career option that is right for them.
Several other considerations should be made, preferably with an outside business advisor who can help you ensure that emotions do not cloud your thinking.
Some key questions to consider are:
• Will family succession create the potential for conflict within the business or my family;
• Are there any differences in future expectations that may arise between you and your successor;
• And will it adequately provide for my family’s future financially.
Exit option: selling your business
The decision to sell your business, either to another business (a trade sale) or your employees or management (a buyout), will be easier to achieve if the business starts out as a registered company.
There are several stages that are important to go through when selling your business:
• Preparing your business for sale
• Valuing your business
• Identifying and marketing your business to potential buyers
• Negotiating with potential buyers
• Completing legal due diligence
• Finalizing the sale and transferring ownership.
• Specialist advice from a financial adviser, accountant and/or legal adviser will help to maximize the value you get from your business through its sale.
Exit option: close your business
Closing your business may be a relatively simple option and one that you may decide to pursue if other options are not possible.
For example, your business may be so tied to your efforts and skills, that without you it could not continue. If pursuing this option, you should be aware of any applicable regulations, such as procedures to wind up a company, as well as obligations to employees such as the provision of severance pay.
Whatever the way you choose to exit your business, one fact should be clear. It is always much better to plan for such an event rather than to be caught un-prepared.
Dr. Dax Basdeo has several years’ experience as an economist in the civil service, and is currently the Executive Director of the Cayman Islands Investment Bureau, a Government agency that focuses on issues relating to business development and inward investment. He holds a B.Sc. in economics from the Wharton School of Business, a MBA from Manchester Business School, and a Ph.D. in Strategic Management from the R.H. Smith School of Business. A published author, his research focuses on the actions that firms take to impact performance and the discovery of innovative business opportunities.