Before You Start Your Business, What Is Your Exit Plan?

Plan With Your Exit In Mind

What is your exit? Not where is the exit, but what is your exit.

When you go to business school, it is one of the things they teach you to think about. They tell you it is important that before you start your business, you should also know your exit plan. It is something we often ask our clients when we first start working with them.

Are you planning to run it until you retire and then just close shop? Are you wanting to create a business you can sell to someone else? Are you wanting to create something you can hand down to your kids? How much money are you hoping to generate in the life of your business? What is your end game?

It doesn’t matter whether you are just starting out, or have been in the game five, ten, or twenty five years. This is something you should have an answer to, so that as you are building and working in your business, you get a clear picture of why you are doing it, beyond simply making some money.

Having an exit plan doesn’t mean that it couldn’t change tomorrow. Let’s be honest, most of us secretly hope one day someone will come along with a great big bag of money and the toughest decision we will have is, where shall I go on vacation. Reality is, most of us know this is not likely to be our end game.

So why is it so important?

Let’s look at that question:

• Investing in Your Business – If you are thinking about running your business for the next twenty years, yourself, then the things you invest in would be a lot different from those you might invest in if you were looking to sell the business in the next five years. To sell you would be looking at investments with short returns on investment. You might invest in the resources to boost your revenue, to look more attractive. If you were looking to running it, you might be willing to invest in something that would have a longer return on investment, but that would yield substantial results over the long term.
• Assets of The Business – For example, some businesses operate out of leased properties while others have buildings as part of the company. The structure of the business can be or not be attractive to someone looking to buy. If I am a dentist looking to acquire the clientele of another dentist, I might not be interested in buying a building or the equipment if it is part of the deal. On the other hand, if you have a premium location, then this might be just the thing, which leads to the next point.
• Structure of The Business – It is always a good idea to be talking to your lawyer and accountant on how best to structure your business whether you are taking on partners, investors, purchasing assets, etc. There are pros and cons in each and depending on how you structure these can make a huge difference in your exit plans. There are ownership, tax implications (both for the buyer and the seller), also tax implications to wind up a business. It is invaluable to have good advisors along the way to make sure you are getting the most out of your business.
• Your Future and Succession – These two go hand in hand. There will be a day you will want to leave your business and retire. Now this could be at ninety, but there will still be a day. You will need to have some sort of money to do this with and in knowing your exit it allows you to determine whether that money needs to be made year over year out of the business, or whether that money will come from handing it over to someone else. To hand it over to someone else, there needs to be a succession plan which includes not only operational readiness, but financial planning. Waiting too long to make these decisions can result in failure

Again, thinking about an exit plan and planning for it doesn’t mean that it can never change, but not planning for it has certainly cost a lot of business owners over the years. If you have a business, a little bit of effort and advice today can save you a whole lot of headache tomorrow. Just get it done…think about your exit.