Even if your business exit plan may not be used for years, developing one sooner rather than later can ensure a smooth transition. More importantly, it can help you make strategic decisions that will benefit you financially during and beyond your exit.
Building a small business exit strategy plan from scratch can be daunting. But rest assured, the Pinpoint Management team has you covered with this personal five-step exit planning guide.
If you have any questions along the way, contact us. We’re here to help you prepare for your transition and achieve the profitability you deserve.
What Is a Business Exit Planning Strategy?
A business exit planning strategy is a business owner’s strategic plan to sell their business ownership to another company or to investors.
An exit plan can benefit you in two ways:
- If your business makes good money, you can reduce your stake and make a considerable profit.
- If your business does not make good money or fails, you can limit your losses with a strategic exit plan.
No matter how much you love what you do, leaving your role is inevitable. By making a small business exit strategy plan early on, you can walk away financially (and emotionally) fulfilled. Not to mention, an exit plan demonstrates commitment to your business’s vision and goals, which will attract buyers.
Your 5-Step Business Exit Planning Checklist
Leaving your business is a big decision that can be overwhelming. It takes time and care to build the right exit strategy, so the time to start is now.
Here’s a five-step checklist on how to make your business exit plan:
- Understand Your Finances
Lay out your personal and professional financial goals and compare them with your current monetary situation. Having a thorough understanding of your expenses, assets, and performance will help you better leverage your time, money, and team. You can set specific milestones (e.g., $XX by December 2023) to help you establish relevant targets (e.g., XX amount of leads or construction projects per month).
Especially in industries such as construction, there tends to be more volatility with earnings (contracts going in and out). Therefore, we believe the finest exit plans are ones that are realistic about future cash flow and market shifts.
- Determine Your Exit Value
Too many business owners don’t have a specific financial goal in mind for their exit strategy. Simply saying, “I want to make as much money as possible,” is not a feasible plan.
Determine how much you’ll need to earn to:
- Pay off your personal and business debts
- Allocate enough funds for retirement
These factors will help determine your exit value. Keep in mind, there are people who specialize in preparing exit plans for small business owners like yourself. They can examine your business’s financials to help you determine a fair value.
- Detail All Key Roles and Responsibilities
Your exit plan should detail all key roles and responsibilities within your business. How does each role contribute to the overall success of the company? What are some tangible results they produce?
Mapping out key roles will help create a smooth transition for your successor. This can also encourage you to think of new ways to leverage key individuals and map out a new leadership team prior to your exit.
- Select an Exit Option
There are several options to exit. The Pinpoint Management team can help you select the right one based on your goals and needs.
You have seven options to consider:
- Selling to a new owner: You can sell your business to a trusted buyer such as a colleague or a family member who shares your vision. Your buyer would be able to pay you for the company over time.
- Closing or liquidating your business: Sometimes, the best path forward is liquidating your business over time if your business has gone through challenges. You can do this by either of the following:
- Pay yourself until your funds are used up and close your business. Keep in mind, if you change your mind during the process and decide to sell, this will decrease the value of your business.
- Close your business and sell the assets. The money you earn will only come from the assets you sell. You must also pay your creditors before you can pay yourself.
- Explore a merger or get acquired: You can either have a company absorb your business (merger) or a company can acquire a majority stake in your business (acquisition). In the case of an acquisition, you’d be able to retain your name and legal structure. Both options may also boost shareholder value.
- Pursue an “acquihire”: In this scenario, you would sell to a new owner and agree to stay on as a key employee or consultant for one to three years while the new owner transitions the business.
- Have existing managers buy you out: This is called a management buyout (MBO). MBOs can be ideal exit strategies for businesses looking to sell specific divisions or whose owners are looking to withdraw from their company.
- Sell your stake to a partner/investor: If you have a partner who has a clear picture of your business’ vision and potential, selling your business to them can be an ideal way to exit. This would require a buy and sell agreement, which outlines how the partner’s share will be reassigned in the event they pass away or exit the business.
- File for bankruptcy: If you can no longer pay your debts, bankruptcy is an option. Business owners typically file Chapter 7 or Chapter 13 bankruptcy.
- Chapter 7 entails handing over your non-exempt property to a Licensed Insolvency Trustee (LIT). The profits from the property would be handed over to creditors.
- Chapter 13 involves asking the court to approve a payment plan, usually between three to five years. This is ideal for companies that have steady income coming in.
Plan Your Exit with Pinpoint Management
For further guidance on building your business exit plan, contact the Pinpoint Management team. We’ll pair you with one of our experienced business development consultants to help you plan ahead and get your exit plan where it needs to be.