How to build a business exit strategy in 5 steps

You built a strong business, but it’s time to move on to your next stage in life.

A business exit strategy is something each of the 5.5 million businesses in the United Kingdom should have in place.

A well-planned exit strategy makes it easier for owners to exit the company whilst meeting strategic goals.

We’ll outline a five-step strategy that you can follow to put a plan in place for your exit, whether you want to start the process now or in the future.

What Is An Exit Strategy In Business?

Business exit strategy planning is your contingency plan that allows for a few things:

1. Owners to withdraw from the business.
2. Investors to “cash out” of the company.

Exit strategies can streamline what happens if the owner retires, but they can also take other forms, such as a rapidly growing entity going to market through an IPO.

What each of the strategies that you’ll learn about below have in common is that they put steps in place for the future of the business. Some strategies offer continuity of the business’s legacy at some point, and others revolve around maximising profitability during a sale.

Common Types of Exit Strategies

Business exit strategy consulting is a smart option for many companies because there are many methods to choose from and they’re unique to your industry, growth, size and other factors.

A one-size-fits-all approach does not work with a business exit plan.

Working with someone who can guide you through the right choice for your company will make it easier to decide among the common types of strategies:

• IPOs: Going public or offering shares of the business to the public requires a strategy.

• Mergers and acquisitions (M&A): Selling a business to another company, even partly, falls under an M&A. A plan can allow the owner to stay involved in the company after it’s sold or step away, which is up to the owner to decide.

• Management buyouts: Existing management may want to purchase most or all of the business, offering employees a stake in the company.

• Private equity: The sale of part or the entire business to someone else through a private equity firm.

• Succession planning: An option to pass the business to one or more family members.

Building an exit strategy is complex, but below are the five steps that you must follow to get started on this process.

How to Build a Business Exit Strategy in 5 Steps

Developing your exit strategy early on in the business is ideal because once you formalise the plan, it will make exiting easier and often more profitable. Plans can change over time, but it’s crucial to start with the first step below.

1. Set Your Exit Goals and Timing

Owners may want to retire and offer a full business for sale, stepping away from everything, but that may not be your goal. An exit plan’s goal may include:

• Retaining a share of the business.
• Staying on with the business after the exit.
• Maximising the company’s valuation.
• Business continuity when the owner steps away.

If you plan on selling your business, your goal is likely to maximise the company’s valuation. You want the highest sale price, so it’s important to generate interest through rapid growth, low expenses and debt.

Once you understand the goal of the exit, you can also put a time on the exit. Perhaps you want to exit by the time you’re 65, or you plan to pass the company down to your family and you’ll need to put a time on your exit.

2. Choose a Business Exit Strategy

Your small business exit strategy planning should include the type of exit you prefer. If you own a fast-growing startup, you may want to pursue a private equity exit. Someone who owns a family business may want to put a family succession plan in place.

3. Ensure Your Team Feels Supported

One aspect of succession planning that’s easily overlooked but should not be ignored is your team. 

First and foremost, ensure that your plan is communicated to all employees. Everyone should be on the same page to avoid confusion and ensure that employees understand expectations and the next steps to take once the exit takes place

Additionally, make sure that your team feels supported. There are several ways to do this:

• Ensure your team feels heard and address concerns.
• Consider implementing a development program for employees. Providing growth opportunities ensures your team is ready for the next chapter of the business.
• Have a plan for unexpected events to keep things running smoothly. For example, you can create a list of backup employees who are trained and prepared to take over these roles should the need arise.

Providing your team with the support they need to navigate the transition will help keep operations running smoothly. 

4. Ensure Systems and Processes are Documented

A successful exit plan sets the organisation up for success after the business owner steps down. To achieve this goal, systems and processes must be documented.

When your processes are well-documented, it ensures that other people can step in and perform the work in the same way and up to the same standards customers or clients expect. 

Every business is unique, but some of the most vital actions to document include:

• Sales processes
• Customer service procedures
• How your products are made, as well as the supply chain connections necessary to produce them
• How your service is delivered and the partnerships involved in the process
• Your management practices 

As an owner, make sure that you’re also documenting any specialised knowledge you have so that your successors may learn from it and utilise it after you step down.

The more processes and systems you can document, the smoother the transition will be once you exit the business. 

5. Obtain a Business Valuation

If selling your business is the ultimate goal, obtaining a valuation should be a part of your business exit plan. A valuation will paint a clear picture of your organisation’s financial health, its strengths and areas that may need improvement before the sale.  

Valuations play an important role in business sales because they help:

• Set an asking price for the business
• Attract buyers 
• Support negotiations and the due diligence process

Ideally, a valuation should be performed before you create your exit strategy and sell the business. Taking this approach ensures you make an informed decision and can make changes prior to your exit to improve the business’s value.

Building an exit strategy requires careful thought and planning. A business coach can provide valuable insights and identify areas of your business that could be improved prior to exiting. 

Speak with an advisor to see how a business coach can help you smooth the transition into the next stage of your life.