As a business owner, it’s important to have an exit plan (or multiple plans depending on certain contingencies that may arise in the future). You want to protect yourself, your financial portfolio and your family when it is time to move on from your business. In addition, you want your company to continue prospering without your leadership. Successful exit planning will protect your business partners, management and employees when you decide to take yourself out of the equation.
There are numerous exit planning strategies used by most entrepreneurs. Whether you are a sole proprietor, head of a large company or part of an ownership group, here are some of the exit plans you can implement:
Merger & Acquisition (M&A)—You can plan to merge your company with another similar business or sell it to a larger company. This allows you to move on and profit sell your stake in the company in a way that benefits you.
Initial Public Offering (IPO)—Convert your business into a publicly traded corporation with an IPO. You may be able to retain some shares or sell off your stake completely. The main downside is it’s harder to control how the company will be managed by the board and shareholders once you are gone.
Sell Your Stake—You can sell your business (or stake in a company) to someone else you trust. It may be other partners already in the business or another individual you know will be able to take the reins of your role.
Keep Your Stake—Another solution is to keep some or all of your ownership stake in a company, yet remove yourself from any significant management responsibilities. Groom someone else to take your role within the company, while maintaining some ownership that continues to produce income for you.
Close and Liquidate—Lastly, you can shutter the business, close the doors and liquidate any assets. This may be a sound option for a smaller business, but harder to do with a larger business (especially if you care about what happens to the company and its employees).
In a previous article series, we actually featured seven exit plan options—including both “internal” and “external” solutions. Check out those past articles here: Internal Exit Strategies and External Exit Strategies. It’s never too early to start thinking about your exit. It’s smart to get an exit plan in place now. That plan may continue to adapt and evolve based on various factors. It may change completely to a different plan at some point. It’s okay to keep revisiting your exit plan and adjusting as needed.
As the time nears to make your exit, you can begin executing specific action steps to make it happen smoothly and successfully. Make sure your personal finances are prepared for the transition. Take some time to speak with any investors or partners in the business. Get their feedback and involve them in the plan to minimize disruption in the company. If you are grooming someone to take over your management role in the business, get them as ready as possible and make sure the company is in good hands when you leave.
If you are selling, going public or closing the doors, find the right time to let your employees know the plan. Help them get prepared for what is to come. Lastly, inform your clients/customers about your exit and any changes that it may affect. This is another way to create a smooth transition. If your role is integral to the company, you don’t want your customers panicking and pulling their business. Keep them informed throughout the process and get them ready for any transitions that will happen. Ideally, there should be no major disruption from their side of the business relationship. Of course, if you are closing the company, then your customers need to be informed properly when the timing is right.
The important message here is that you need to have an exit plan ready. It will make your transition into retirement or new business opportunities much smoother, and in most cases, ensure both you and the company have successful outcomes.
For help with your exit plan, estate plan or any other important business planning strategies, contact Illumination Wealth. Let our team help you plan for your journey to financial freedom.