When is an ‘exit strategy’ appropriate?

A proper plan can be undertaken at any time

Jeff Kraai
Exit Strategies

Whenever you create a business that’s profitable, you most likely create something worth selling. If it’s worth selling, many would argue it’s worth protecting. The question is how? High quality protection begins with asking a few questions, which evolves into a confident, well-developed plan protecting both you and your family.

Having an "exit strategy" tells others you associate with that you are in control of your business and your destiny, that you’re aware of the goal and focused on achtieving it, and that you have a plan for an organized and profitable ending.

Business owners who do not plan for ownership transition are often faced with the inability to receive enough money in an ownership change to fund any retirement, let alone a comfortable one. This doesn’t happen because such owners failed to create value in their businesses; rather, it’s because they failed to do the preparation and planning that would have allowed them to build, keep and maintain that value.

There are many points in the lifecycle of a business when an exit strategy is important. If you are just starting your business and intending to seek angel investors or venture capitalists, most will require you to have a viable exit strategy in place before they’ll award you a dime. Business owners who are approaching retirement may want to sell their business to a synergistic buyer in the industry, an independent third party, a key employee or to partner. Some owners may want to transfer their business interests to children or other family members. How can all of this be accomplished? You got it — with an exit strategy.

If you’ve been in business for years and are just now thinking of developing an exit strategy, don’t despair. First, please do not approach this as a one-time choice, but rather as a process. Secondly, the higher the equity, the more critical your plan becomes.

So, what are the key points to an exit strategy? All exit plans should identify the following key topics: current valuation of your business, the factors that drive the value of your business, methods to increase that value, the potential future value, the best option or two for an ownership change, plans to address the tax implications during your ownership and upon a sale and income needs for retirement.

Answers to any of these questions will be good information. Answers to all of them will help create a complete plan, which will provide you with the confidence and peace of mind you deserve as you plan for retirement. Equally important, solid answers will lead to solid decisions in your business, resulting in a higher yield, both at the point of sale and into retirement.

Jeff Kraai is president of Exit Strategies Inc., specializing in business valuations, confidential business sales and retirement transitions. He can be reached confidentially at 360-696-5812, 503-577-5649 or at info@perfectexit.com.