How Important Is It To Have a Business Exit Strategy?

No one starts a business expecting it to fail, but the reality is that around 80% of companies don't survive beyond their first year. The importance of an exit strategy can't be underrated and it's vital to consider how you'll exit your business if the time comes.

There are several different options available when it comes to an exit plan and the type you choose will depend on your individual circumstances. Again, no one likes the thought of their business not being a success, but there are plenty of important reasons to put an exit strategy in place. If you're looking to safeguard your future and finances, see below to find out more about the importance of an exit strategy, the exit strategies available and why they're a good idea.

What does a business exit strategy involve?

A business exit strategy is a plan made by the owner or founder of a business to sell their company (or their share of it) to another investor or firm. No two exit strategies are the same and the right plan for your business could be disastrous for another. Each individual plan needs to take several factors into account, including the company's unique circumstances, the current market, trends, and the timeframe of the owners.

You'll also need to consider what you want to achieve from the exit plan and what your ideal outcome would be. Some popular exit strategies include initial public offerings (IPOs), strategic acquisitions and management buyouts.

Each business strategy will consider the following elements:

Goals - are you simply looking to make a profit? Or is the goal for the business to continue with their mark on it.
Time frame - how quickly do you need to make the sale? A flexible time frame offers more scope for negotiation and potentially a better deal.
Intentions for the business - are you keen for the business to continue or are you comfortable with it being liquidated or merged with another company?
The future - future plans will also affect your business exit strategy. Are you planning to retire, or start another business? Do you need to make a profit or are you happy cutting your losses and breaking even?

Why is an exit strategy important for business owners?

Many experts would advise that you incorporate an exit strategy into your wider business planning. Below we share several points that highlight the importance of an exit strategy to fall back on should the worst happen.

Informed decision making

An open-ended strategy can make decisions more difficult, but business owners can make more informed decisions if there's an exit plan in place. An exit strategy keeps that end game in focus and ensures each decision is made with the business's best interests in mind.

Enhances the business's value

An exit plan can't control the monetary value of your business, or necessarily increase its worth when it is sold. What it can do, however, is increase the value of the business to the current owner. An exit plan means that you can steer the business towards your preferred conclusion and enhance its value along the way.

Although an exit plan won't increase the business's value, the importance of an exit strategy here is that it can protect the existing value of your company. A clear plan lays out exactly what your business is worth and can help you get the best possible deal when you do sell.

Adds flexibility

Life isn't always predictable, but an exit strategy can be adjusted if your circumstances change. As the pandemic has shown us, things can change very rapidly but an exit plan means that you can quickly adjust if necessary. You're more likely to make a quick sale or get the outcome you desire if a well thought out plan is already in place.

Limit losses

An exit strategy can help limit losses if a business is struggling, allowing owners to make a clean break with minimal negative impact. Alternatively, if the business is making money, an exit strategy can allow you to separate completely and still make a profit.

Business Exit Planning Services

Now you understand the importance of an exit strategy, if you're looking for professional advice to plan your business exit strategy, get in touch with the experts at Keith Graham Chartered Accountants. The team are on hand to help you put together the best exit plan to suit you, to minimise your tax liabilities, maximise financial gains and ensure a smooth transition.

We'll work with you every step of the way, from setting the initial plan to making the final sale. For more information about our business exit services, give us a call today on 01252 312561 or contact us online.