We’ve all heard of the Exit Strategy, but why is it important?
It might come as a surprise that how you intend to finish is one of the most important things to think about when you start a business. Who you intend to sell it to, may have a large bearing on some of the decisions early on. Here’s why the exit strategy at the time of start-up should be given the gravitas it deserves.
Think abouts
The Buyer
Consider carefully who you will sell to. A series of restaurants developed for large-chain takeover will have a different strategy than if selling to an individual. Getting the business ready for sale to a specific buyer profile can make a big difference to what the business might be worth.
Tax Planning
Ensure the tax planning is thought through carefully. You may want to sell your business as a company, as a partnership or as an individual. Each will have a series of tax issues to consider and the type of business set-up may have significant tax implications later on.
Capital / Revenue
Decide if you are building business value by trading performance or asset ownership, or a combination of both. Practice based businesses tend to build a trading value. Other businesses run at very low profits but build asset value over the long term.
Property
Determine if the business should own property. A manufacturing concern will be worth more if it owns its premises but office ownership for an online business is less important. An interesting example of this is McDonald’s whose principle value lies in its global freehold asset ownerships.
Employees / Suppliers
For some businesses it is the employees and suppliers who are the biggest value. Focus on staff training and supplier relationship development and make sure all the necessary contracts are in place. A buyer will pay a premium where there is operational strength.
Timeline
There is a natural conclusion to most things and a business is no different. Determine how long you intend to own the business and have clear targets in place so that the business is where you want it to be when you are ready to sell. Timing is everything as they say.
Start now
In an ideal world every new business would have an exit strategy, in reality, of course, few start-ups do. Most tend to start, and then see how things go. That’s okay, but a good exit strategy well planned for will reap its own rewards. If you don’t have an exit strategy, it is a good idea to start one now.
What next
Decide what you want to get out of your business and the potential value it might have. Ask your accountant if you need help putting a plan in place. An exit strategy will almost certainly help you better manage your business and greatly increase your chance of getting the best price. And that’s got to be a good thing.