Don’t skip this article just because you have “no intention of leaving your business.” Exit strategies are an important part of the planning process, even if we don’t think we’ll make use of them.
Planning allows you to control different aspects of your business and the more you plan, the more you are in control. Less planning means that you run the risk of letting some other factor influence or control your decisions. That’s why exit strategies need to be planned, so that they don’t end up being decided for us.
It’s okay to have an exit strategy of “When I’m done working, this business is done.” However, you should consider other exit strategies as well. Here are a few more to consider and what you can do now to make sure you are in control of the strategy.
- Sell my business. Getting out of business may mean selling it. This could be a great plan, since you’ve built it up over time and selling it gives you the opportunity to take that money and either start something else or retire. Decide if you would prefer a lump sum or a series of payments, and what you would do with it. Try to determine what measurables someone else would look at if they were thinking about buying the business and keep track of those measurables. Separate yourself from your business so that the other person will buy a business with customers and with business practices that make sense to them.
- Pass my business on to my children. Passing on your business to your children is a great idea. You will need to make sure you use a business model (like incorporation) that allows you to do that. You may also want to hire your children early on to show them the ropes. Decide what your role will be and whether you’ll duck out immediately or slowly phase out your responsibilities, and what remuneration will go with you. You’ll also want to think about other strategies in case your children do not have the same interest in running the business.
- Failure. Of course no one wants to think about failure but it is a reality in business and it is a type of exit. The exit strategy, of course, is to avoid failure at all costs or – if avoiding is impossible – manage the failure to minimize its cost to you. One example of an action to take now to minimize the cost of failure would be to incorporate, since incorporation separates the business financials from your personal financials. Thus, if the business does fail, the bankruptcy won’t affect your personal assets. You may also want to create a series of “triggers” or “thresholds” that you pass on the way toward failure as early warning indicators of an impending disaster. If you can sell your business then, do so. (Be ethical about the sale and sell it to someone who specializes in taking downturn businesses and turning them around).
- My business ends when I stop working. Yes, this is an exit strategy. You will want to plan it, too, so that you’re not stuck with many old and unsellable assets at the end of your business’ life. If you own two work trucks, for example, plan to sell one some time before you shut down. Slowly liquidate your assets – according to a preplanned schedule – to keep the income strong until the end but to keep you from being stuck with a lot of work once your business is over.
Exit strategies are your way of planning and controlling your eventual departure from the business. You WILL exit your business. Start figuring out now what that will look like and what you need to do today to maximize the profits from it.
