How to Create a Good Business Exit Strategy

Sometimes you have to be honest with yourself and realize that nothing lasts forever. Perhaps the best days are over, or maybe you want to get out while the getting is good. Whatever the reason, it's entirely possible that you will reach the point where the best course of action is to sell your business and move on. Instead of improvising on the spot, the transition will be much easier if you already have a plan. Here’s how to create a good business exit strategy that will guarantee your financial security.

What is an Exit Strategy?

As a business owner, you have a stake in your company. Whether you are the sole owner or just a shareholder, it's up to you to decide what you will do with your share of the business. If the business is performing well, you could make a nice profit. On the other hand, selling can be a great way to cut your losses if the company is doing poorly. An exit strategy represents a plan you have prepared in advance on how to sell your business.

A good business exit strategy will help sell your business for maximum value. This can let you pursue other ventures, invest in passive income sources or settle down and retire. The most common exit strategies include public offerings, buyouts from other owners or management, or strategic acquisitions. Ideally, it would be best to set up an exit strategy well before it's time to sell. Some companies even create them before they start their business.

How to Create a Good Business Exit Strategy

Below are the steps to creating a solid exit strategy if you decide it’s time to sell or close your company.

1.  Have your business evaluated

You should hire an auditor to assess your business financially. They can also help you prepare an accurate account of your personal and professional finances. This can include all of your available assets versus your expenses and owed debt. After carefully evaluating your business performance, you will know what a realistic offer for your stake in the company is. It's always good to speak to a business lawyer or financial advisor. They can inform you of your best options from now on. Additionally, they might remind you of specific legal obligations you may have overlooked.

2.  Find the right time to sell

Your choice of timing can significantly impact how much your business is worth. Potential buyers will likely look at how your company has been performing. If you decide to sell when your business is doing well, you can expect a better offer. You, of all people, should know best when it is time to sell your business. Take a look at your yearly performance and determine when your company has an increased volume of customers. It would be best if you tried to sell in that quarter. Conversely, if you decide to sell during a slow period for your business, your payout will also be lower.

3.  Do you have business partners to consider

If you are not the sole owner of the business, you should probably talk to your partners. You may also be legally obliged to inform them of your desire to sell your stake in the company. Specific contracts will stipulate that they have the right to a priority purchase. It means that you will not be able to sell to a third party before offering your partners the opportunity to buy you out first. Unfortunately, this also means that you might have very little room to negotiate if you have to sell your business in a hurry.

4.  Transfer any obligations and duties

Besides just being the business owner, it is quite possible that you also performed some critical work. You should find new leadership and start transferring some of your previous duties. This process will be significantly easier if you already have detailed documentation. If you want to create a good business exit strategy, you should also consider documenting how you handle the transition.

5.  Talk to your employees and clients

You will also need to inform your employees that someone else will be taking over ownership of the company and your day-to-day duties. Ideally, you should stick around long enough to help the new leadership and management team get a hold of things. If you were personally dealing with high-profile customers, you should tell them that a new owner will be taking over and handling their accounts. You can introduce the new owners to your existing customers as a show of good faith. On the other hand, if you are closing your business, it might be good to give both your employees and customers a warning.

What to do if you are liquidating and closing your business

If you aren't selling the company to a new owner and want to liquidate and close up, you should consider a few things. Generally, it's much easier to get a payout if someone takes over since the business will continue to exist, and you can cash out. Here is what you should do if you want to close up for good:

  • Give advance notice to cancel the venue. You will need to cancel the lease on the office space or place you are renting.
  • File documents for business dissolution. This includes paying all necessary taxes and final employee payments and severance packages.
  • Sell off your inventory. Depending on how much inventory you have, you can post listings or contact other businesses to see if they would be interested.
  • Move out. If you plan to start a new business and keep some inventory, you will need to find a solution for your possessions in the meantime. The professionals from recommend renting a storage unit. Hiring commercial movers is also advisable as they can help you organize packing, moving, and temporary storage.
  • Pay off any creditors. If you have any business loans, you will need to handle those first before getting your payout.

Final thoughts

Now that we've explained how to create a good business exit strategy, you can start preparing even before you need to sell your company. It's essential to include some of these decisions in your overall business strategy to ensure a smooth transition. Remember to carefully consider your needs and expectations when creating an exit strategy, and you won't have to worry when the time comes to sell.

Meta description: Before you sell your company, you must create a good business exit strategy to ensure you sell for a reasonable price.

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