Exit Strategy for Small Business Owners

The decision to sell or transition a business can be the most important and yet most difficult decision a small business owner will make. As they are likely to do it only once it is critical to have the right exit strategy in place.

What is an exit strategy?

An exit strategy is the plan an entrepreneur makes to transition their business to another individual / entity. It involves setting goals for the level of impact and future of the business, a general timeline for transitioning, and an analysis of financial goals and paying off all liabilities. 

Why do you need an exit strategy?

Entrepreneurs become so focused on managing their business and serving their customers that they often neglect to plan for the company's long-term future. They allow all of their net worth to become tied up in the company, they don't develop second-tier management, and they don't learn to delegate responsibility. Owners then aren't prepared if a disaster keeps them from working for an extended period, nor do they begin planning for their own departure in time for a smooth transition. 

Business Owners rightly think of themselves as irreplaceable. But as a business matures, the owner must prepare so that the company can withstand their absence and ultimate retirement. Such a process must be considered earlier than most owners think because it can take five to ten years to put the appropriate pieces in place.

Research shows that 48% of business owners do not have an exit strategy in place, and this can often be because they don’t know where to start. It is crucial to have a strong group of advisors to aid in the process of developing a plan. This includes accountants, lawyers and trusted financial advisors with strong and diverse experience. Having a sound exit strategy helps you protect the value of the business and ensures a smooth transition.

Benefits of an exit strategy

Flexibility: Having an exit strategy in place can allow you to have flexibility during unforeseen circumstances, such as a sudden death, health issues, or financial issues within the business. This can also save time, alleviate stress and allow for a smoother transition. Also, you are psychologically prepared to leave.

Efficiency: When you know the end goal you hope to achieve, this helps you make more strategic decisions in the present time with regards to setting up the operations and organization structure. Along with this, pre-planning allows you to have a more seamless process in place for members of your internal team. 

Transparency: Sometimes you might receive unsolicited offers for your business. Having an exit plan will help you identify mediocre offers as you will have a better understanding of the value of your business.

Consistency: A well-developed exit plan is a reflection of your hard work and dedication which can be attractive to buyers as this helps them have confidence that there will not be any changes in business operations during an ongoing transaction and post-sale.

Different ways to sell a business

There are many different ways to sell your business. It may be to family members or employees (a Management Buy-Out or MBO), to a third party – either a strategic or financial buyer via a formal sale process or in the public market, -- through an IPO which involves offering shares to the public. Having an exit strategy in place will have you better prepared to go through the sale process. However, selling a business is a lengthy process and an owner requires sound guidance throughout the process.  Also, the sale process requires a significant time commitment from the owner.  The sale process is often overwhelming to the business owner. This is why it is crucial to hire an experienced advisor like Distinct Capital Partners to guide you through the sale process.

Why Distinct Capital Partners?

Distinct Capital Partners has specialized in advising owner-operated lower middle market companies for over 25 years. We ensure that the business owner can crystalize his or her exit plan by running a confidential sale process that will maximize the value received.

If you are interested in learning more about selling or buying a business, please contact us at (905) 827-1880 or info@distinctcapitalpartners.com.