The when, why and how of your business exit plan
Wednesday, September 7, 2016/
You hopefully spend a lot of time thinking about plans and strategies for how to run and grow your business. But do you put the same amount of thought into exiting your business?
A well-considered exit plan is too often overlooked by entrepreneurs. It’s understandable because the here, now and not-too-distant future takes up so much of our time and energy. Who has time to think about an exit when you’re busy running a business?
Well you should start your exit planning now; don’t leave it until you’re put in a position to accept whatever offer comes along. In fact, how you set your business up and evolve over time will have a bearing on the type of exit strategy you can pursue.
What questions do you need to ask about your business?
The manner of your exit plan will depend on the type of business you run, including such factors as size and industry. Your exit will also be strongly influenced by whether the industry you are in is on the rise, stable, or in decline.
Your market position in the industry will also influence your exit. As a leading or rising business, you might be seen as a coveted acquisition for a bigger firm. If you’re a straggler, offers might be less generous, or few and far between.
One of the key things to consider when thinking about your exit plan is value: what is the value proposition of your business? Is that value inherent in your employees? Is it in the goods you design, manufacture or sell? Is it in the intellectual property you hold?
The value of your business has to be transferable. This is a crucial point that some business owners don’t fully understand.
For example, if a business relies upon its owner’s personal network and connections for much of its revenue generating capacity, that is the value proposition of the business. This type of value can be harder (though not impossible) to sell to a prospective purchaser than a set of IP patents.
What are your options?
There are several basic options available in terms of exit strategies. These include higher end options like an initial public offering, all the way through to winding a business up and liquidating its assets. Again, the exit option you might take really depends on your business and its circumstances.
Initial public offering
The most glamorous exit option and the one you read about most in the news is the initial public offering (IPO) or sharemarket float. Taking your company public is not an option for the majority of businesses and is usually reserved for those companies that have the infrastructure and revenue to attract public investment.
The bar has been lowered somewhat on which companies can float on the sharemarket, but it’s still usually rare for any old company to go public.
Merger or acquisition
Going public is not a viable exit path for most businesses. Many businesses stay in private hands but are either acquired by another party or merge with another business.
These sorts of buyouts can take the form of an acqui-hire, where the buying business basically wants the talent rather than what the business itself does, or it could be as simple as one company buying out another in order to remove a competitor from the field.
It can make a lot of sense as an exit strategy to understand and constantly monitor where you sit in your industry. By creating a particular niche or owning a certain segment of the market, you can position your business as an attractive target for a bigger fish to swallow.
This type of exit strategy is most commonly associated with family businesses, but it can also take the form of a management or staff buyout. Usually it is a matter of the business founder passing on the baton to the next generation. This brings with it a range of issues that need to be sorted out well in advance, not least of which is whether the heir apparents are actually keen on joining the family trade or even up to the task.
Straight sale or liquidate
This is probably the least attractive option as it often puts you at the mercy of business brokers and those looking to drive a hard bargain for your assets. This is the scenario too many business owners find themselves in when they have neglected to think through an exit strategy, or have entered a set of circumstances that make selling up quickly their only option.
By starting to think about your business in terms of its value to others and how that value can be maintained and transferred, you will have set out on the path to working out the best exit strategy for you.
You need to know what it is that’s valuable about your business, how that value can be maintained separate of your continued involvement, and how you can pitch that value to prospective buyers.
Once you can do this, you will have the beginnings of a potentially lucrative exit strategy.
Fi Bendall is chief executive of The Bendalls Group, a business that leads STRATEGY : ADVOCACY : MOBILE delivering the business acumen to drive effective positive results in a disruptive economy for the C-suite. Fi has recently won a Westpac/AFR 2015 100 Women of Influence award.