Reasons You Need an Exit Strategy

Most business owners concern themselves with growth and expansion, and sometimes, how to make ends meet.    When starting or buying a new business, the last thing on your mind is how to exit.  However, an exit strategy is a key component of a successful business plan and too few owners give this proper consideration.

An exit strategy is nothing more than your plan on how you intend to leave the business.  In the end, you will either sell, close, or die.  Each of these situations offers different opportunities and challenges, but the main point of this blog post is that a business owner needs an exit strategy and here are some reasons to have one.

An Exit Strategy Allows for Retirement

Most business owners have a significant portion of their net worth tied up in their business.  With a proper planning, you can turn this net worth into cash to provide you with a comfortable and worry free retirement.

An Exit Strategy Provides for the Future


Your family and employees depend on your business and without proper planning, your death or disability could be tragic for them.  By planning for this fairly common situation, you can make sure your business continues on in your absence and provides for their future needs.

An Exit Strategy Can Provide Cash to Pursue Other Dreams


Regardless of your age, many business owners dream of starting another business or becoming an angel investor to other businesses.  Selling your business can provide the cash to follow these dreams and a well structured strategy will help you maximize what you take from the business and provide the liquidity to pursue new opportunities.

An Exit Strategy Will Appeal to Investors


Most outside investors want to know how they are going to get repaid.  For many investors, an exit strategy is a must because they want their investment protected.  By building this into your plan, potential investors will understand how you are looking out for their interests.

An Exit Strategy Will Help You Know When to Quit


Another reason to think about your endgame is understanding when is it time to pull the plug.  Without thinking about this, it is easy to continue throwing good money after bad in a business venture that clearly isn't making it or working the way you planned.  By planning for this contingency in advance, you'll have clear mileposts to help you decide how and when to end the business, regardless of its success.

It's important that you plan for your business exit.  I guarantee you'll leave your business someday and proper planning can make the difference between a successful exit and one that's not.

The Value of Planning

Yesterday I got some sad news. One of our clients died unexpectedly. He was under 40 and left behind a family and a business. While tragic, this isn't a rare event.

Are you prepared if this tragedy were to strike you or your business?

I'm not.

I know the importance of having a will yet I don't have one. If you die without a valid will, state law dictates how your estate will be divided by your heirs according to very specific set of rules. Your friends, favorite relatives and charitable benefactors will get nothing despite your intentions. The only way to not follow the state distribution process is to die with a valid will.

It is probably best to use an attorney but that isn't necessary. Check with your state to determine what form (In writing, witnessed by two people, etc.) a valid will may take.

I've had "getting a will" on my to-do list for years. I'm going to get this accomplished before the end of summer.

On the business side, it is important to consider and plan for the death of owners and key employees. You can use key person insurance, buy-sell agreements, life insurance, and similar techniques to prepare for these contingencies.

A business can have considerable market value which can dissipate quickly upon the death of an owner if proper plans are not in place. I've seen businesses lose half their market value or more when the owner dies without proper planning.

I'm meeting with an attorney next week to put in place the necessary plans so that my untimely death or disability doesn't compromise my business, family, coworkers, or clients.