The Secret to Why Creating an Exit Plan is Part of Business Planning

No matter how knowledgeable and experienced you are in business, you cannot fully predict the future and the direction of your company. A well-prepared business plan can save you and your business. It can even save you money if an unforeseen crisis occurs.

In every business, it is important to start with business planning. This can be your guide to your success. The effectiveness of this plan can help you in visualising your financial goals and building business strategies.

No matter how knowledgeable and experienced you are in business, you cannot fully predict the future and the direction of your company. A well-prepared business plan can save you and your business. It can even save you money if an unforeseen crisis occurs.

Many business owners have thought of the vitality of business planning but most of them do not think about the need of creating an exit plan. That is understandable. Of course, when you start your business, the last thing you want to consider is leaving it. But it is never too early to create an exit plan for your business.

Why is creating an exit plan vital to any business?

Some may think twice about creating an exit plan as this can be defined as the plan on how you will leave your business at some point in time. But do not think negatively.

All kinds of businesses, small or large, need to plan ahead and think of how they want their business to be in the future. Smart business owners do have plans of leaving their business one day, and they want to leave the business in a strong shape.

Here are some of the reasons why business owners should have a business exit plan:

  1. Allows you to plan the business’ future

It is important that, as a business owner, you create an exit plan as early as possible. You need to think about your business options in the future. A comprehensive business planning includes an exit plan as part of the business strategy on securing your and your business future.

  1.  Gives you an insight of the business growth

In creating a business exit plan, business owners will have to go through all the details of their business which include financial records and company assets. By doing this, they will have a good look at how their business is doing. They can also see if they are on track with their business goals or they need to adjust their business strategy.

  1. Enhances your business value

A business exit plan shows potential buyers and investors that business owners have a long-term plan for their business. It allows them to see the value of your business and that you have a certain direction of business growth.

  1. Smooth transition

When a business exit plan is prepared beforehand, it can provide a smooth transition for both the management and the employees when sudden changes happen in the business.

  1. Emotional preparedness

It can be emotional and a bit overwhelming when one thinks of leaving their business. And creating a business exit plan can require patience and careful thinking which can give business owners enough time to manage and control their emotions when the time comes.

DDDC Business Advisory can help you save time and money in the future. Our advisory team can guide you in your business strategy and finance.

What are the common types of business exit plans?

There are several business exit plan types that business owners can consider. And the best type can depend on the business type and the business financial goals. This is also dependent on what the business owner wants their business to be in the future.

Some of the most common business exit plans are:

  1. Merger and Acquisition

This is a win-win business exit plan approach which happens when one is selling their business to another company. It is a strong business exit plan option for any company as they can set any conditions and terms when they combine with another business, and if they are selling the business to a competitor, they can even set a higher price. This approach is appropriate for businesses of any size, even for startups.

  1. Initial Public Offering (IPO)

This had been a known option before for many businesses. It is the first sale of a business’s stock to the public. But this is not advisable for startups and most small businesses. Going public may help the reputation of a business but it is a long and expensive process. And even if the business is doing good, buyers may not be as excited as you expected and may devalue your business instead.

  1. Management Buyout

When a business has been running for a certain period of time and business owners decide to exit, they can turn to the people who are part of the business. These individuals may want to buy the business as they also know you and have knowledge on managing the business. This plan works well for those who value business legacy and may also result in a smoother transition.

  1. Acquihires

Another type of business exit plan, acquihires is when a company buys a business solely for acquiring its talent. This will be a great option that will surely take care of your employees. This is again not for all kinds of business as there may be difficulties in finding a buyer that is interested in this kind of option.

  1. Liquidation

This is the common exit plan for businesses that are closing. This is the process when one completely stops the business operation and sells its assets. Any cash earned from selling will go towards paying the creditors and shareholders (if there are any). This is the final and the last resort for any business. Business owners should consult first DDDC Business Advisory to engage a liquidation expert to make sure they follow the right procedures in selling their assets, paying their debts and finalizing any legal commitments.

Planning ahead is vital in every aspect of our lives, including our businesses. The more prepared you are in exiting your business, the more you are also planning its success.

Get started on your exit plan today to make sure that you will deliver a high-value exit from your business. 

Sources:

[1] Richards, D. (2020, January 4). How to Write a Business Exit Plan. The Balance Small Business.

[2] Wood, M. (2020, November 19). 8 Business Exit Strategies for You to Consider. Fundera.

[3] Zwilling, M. (2011, January 11). Five Smart Exit Strategies. Entreprenuer.

[4] Landau, C. Planning Your Exit Strategy for Your Small Business or Startup. BPlans.

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