It may seem strange to think about leaving your business if you’ve been there a long time or if you and your business partner are working together just fine. But without a defined plan, exiting your business could be more of a challenge than you bargained for, and leave you with a lot of professional baggage.
What is an exit strategy and why is it important to have one?
An exit strategy should be part of your business contingency and risk management plan. It is a pre-planned approach to calling it quits and is designed to both limit losses if you’re closing the company altogether, and provide a smooth transition if you’re selling or changing hands of responsibility.
In the worse case scenario, it also ensures that you hold onto your money if everything goes down the tubes. With an exit strategy in place, if disaster strikes, you’ll be able to pay your creditors and walk away gracefully. While to some an exit strategy sounds negative, like having a prenup for a relationship, it’s actually a very smart move. Here are a few common reasons why business owners build their company with an exit strategy in place from the offset.
1. Seamless transition
You’ve done the hard years, built your business from the ground up and are ready to sit back and enjoy your retirement. So you’ve decided to find a successor to carry on your role in the business. You’ll be needing a succession plan, which in many ways, comes part and parcel with your exit strategy. Ensuring that your business is well taken care of and that your successor knows exactly what they’re doing before you take your leave is vital to the welfare of both the company and your staff.
A successor needs to be trained for twelve months at the very least before taking over your position. This will give them time to feel comfortable in the role and confident in the management of, and relationships built with, your staff. It ensures a seamless transition for the business into a new phase of management.
2. Coming out on top
Risk mitigation is an integral part of every business idea from the very beginning. Nutting out all the worst case scenarios for your business before it’s even gotten off the ground may seem a tad doom and gloom but can save you billions in the long run. It’s not about expecting the worst, but preparing for it, being proactive, and knowing your challenges so that you can put strategies in place to prevent losses from occurring. This way, when you do decide to exit from your business, whether this is during retirement, when selling it or closing it, you can be sure that you’ll be coming out on top.
How to create an exit strategy
When making an exit strategy for your business, an impartial third party point of view with expertise in the areas of law, finance and business, is invaluable. Toohey Reid offers unique business insights and advice when it comes to preparing exit strategies and conducting risk assessments for your business. Give us a call today to make your business strategy bulletproof.
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