An exit strategy is an accountable record of your business woven into your business plan. It is three to five years of tracking of your client base, the sales via buyers and sellers, your costs involved in creating that client base and therefore your income. It is essentially a track record that enables a potential buyer to duplicate just what you’ve done to generate your income.

It’s an important issue because it establishes the value of your business. Since a buyer will want to look at a three to five year trackable record of amounts of clients, amounts of marketing, advertising, follow-up costs, etc. it took to achieve the annual income, the time to start is when you’ve created a business plan.

Why? Surprises happen. Many of us have a story of an associate who had to sell their business unexpectedly. The reason could be an accident or a serious health situation.

You probably already know the basics you need to create an exit strategy. You know how much money you want to have by a certain age and how much risk you are willing to take. Know why you are in the business and what is most important to you. You are unique and the interests and background you have means you will have special plans for the future. They are the first steps on your journey to an exit.

Do you want to retire to some island paradise, or do you plan to stick around after the sale? Do you want one of your colleagues or children to take over? How does that affect the amount of money you can expect to get up front? Is your business one where your personality and abilities are critical to the value of the company? You may need time to hire and train key people, and gradually put more distance between yourself and the company.

There are several ways to exit:

1. Sell your business.
2. Have it acquired by another company.
3. Pass to the reins to another family member.
4. A manager, an employee, a colleague buy-out
5. Or, just close the doors.

Exit strategies that fail

Selling your business on short notice or simply closing the doors, are the simplest options, and the ones with the least financial reward. But they can happen if your official exit strategy is to manage your business until you wake up one morning and say, “Forget it! I can’t do this any more.” At that point, you can start looking for an exit and take whatever you can get. Unfortunately, that will probably be a great deal less than if you strategize while you are still enthusiastic about the business.

Plan to succeed

Say you’ve decided you are retiring to that island paradise. Add it to your business plans, but don’t buy the island, yet. Remember that keeping your end goal in mind, while staying flexible about how to get there, increases your success. Plan to succeed at any time, no matter what unexpected thing happens.

The right strategy is about maximizing the value of your business, step by step, now and for when you want to leave. Most agents want to minimize their tax consequences, for instance, but this tactic reduces the maximization of value. This is one of the steps that may need attention. Preparing is maximizing. It’s not just getting out. It’s maximizing the value.Understand Your Market

That’s what you do best, here’s how to apply it to your exit strategy. Think about the type of buyer you want to target, because different buyers have different motivations. You are offering value to the target buyer, and it is related to your core competencies. Targeting a group of buyers is just like designing your marketing plan. It is built around your competitive edge, and flows directly from what you are good at. Develop a nice market, similar to how you target clients.

Look for a buyer that shares your vision. If you are selling to a colleague, they may want to keep your name and phone number as well as your client base. Have you done a good job of branding, so that the business is easily transferable? If your ext strategy is to sell your company to your partner, your employees or your heirs, you need to take a hard look at your income needs. If cash flow is critical, maybe you want to target buyers who have the financial structure to purchase outright.

Published: June 17, 2004

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