The page you were trying to view is not available for your role and region.
“All right twinkle toes, what's your exit strategy?” So said Tom Arnold’s character Albert Gibson to the all-conquering spy Harry Tasker (played by Arnold Schwarzenegger) in the 1994 movie True Lies. It’s a question business owners should be asking themselves too, not just those who have already made the decision to sell up, but all business owners. For leaving it late to draw up a viable exit plan can narrow down the options available which in turn can lead to a less favourable outcome being achieved.
A big decision
For many, selling all or part of a business is one of the biggest decisions they will ever make. Sound planning plays a fundamental role in most business successes—it’s what has got you to where you are today along with years, or even decades, of effort and dedication— but for many, the planning only goes so far. For many, it does not extend to exiting. How many? According to a 2019 study by UBS, around half of business owners surveyed did not have a formal exit strategy in place.
All too often owners being underprepared for a sale can have material consequences. This can lead to selling their businesses either in a manner that does not fully compensate them for their years of effort, or the sale takes place at a later point in time than they expect.
A simple solution: plan early
Planning early, however, can be easier said than done. Owners tend to be so focused on the running and growing of their businesses that they can neglect longer-term personal plans. And there is no off-the-shelf plan to draw on when the time comes either. That’s because no two entrepreneurs are alike. Key considerations and plans therefore depend largely on what matters most to each individual. This can be a difficult process, and a good starting point is simply identifying what’s personally important to the owner by answering the following questions:
- What would you like to accomplish?
- Who matters most to you?
- What legacy would you like to leave?
The answers require careful consideration and may change in time but giving them some thought can help to frame decisions in the present, as well as for the future. Popular routes for those looking to wind down after selling a business include retirement, travel and spending more time with family. Whereas those looking to carry on working may consider starting another business or becoming an employee for another company.
How much is enough?
Answering the above questions (or at the very least considering them), allows business owners to have a clearer idea of what they want to get out of a sale or other form of exit when the time comes. This helps inform the answer to another key question: how much is enough? Most business owners have a minimum price at which they would sell but three other factors are also key:
- Liquidity: What are the resources required to fund your desired lifestyle? Do you have other sources of income? Will your spending increase or decrease going forward? Have you got a cash buffer for unforeseen developments?
- Longevity: The length of expected life after selling the business –different for a 40-year-old than a 70-year-old.
- Legacy – What you would like to leave behind for your loved ones? This can mean quite different things for different people.
Answers can vary depending on the aims identified in the pre-sale phase. Retirement and travel require higher sale proceeds than if going into employment for another company, for example. True, the calculations can be quite technical—essentially determining the net present value of future family spending—but the results can provide a degree of clarity which would otherwise not have been possible. And while the results may show a shortfall between the attainable sale value and the desired amount, they could also do the opposite, allowing owners to realise they are able to sell sooner than they expected.
So, whether you are thinking of selling your business or you plan to keep going for a good while longer, it’s time to ask yourself: “what’s my exit strategy?”
