What is Exit Planning?
Here is a formal definition: “Exit planning is the preparation for the exit of an entrepreneur from his company to maximize the enterprise value of the company in a mergers and acquisitions transaction and thus his shareholder value, although other non-financial objectives may be pursued including the transition of the company to the next generation, sale to employees or management, or other altruistic, non-financial objectives.”
There are many complex objectives involved in exit planning that can be challenging for a business own to navigate on his own. These include dealing with management, financial, legal, and taxation aspects that occur during a big change. All of these are part of the planning process, however, not exit planning as a whole.
Essentially, exit planning is an entrepreneur learning to view his business as a buyer would, objectively, and, as a result of seeing the business as it is, setting goals and objectives in order to strengthen his company over time so that:
- The company can become stronger and continue on without his management to the benefit of its shareholders, workers, and customers.
- The company when it goes up for sale will attract the interest of quality investors who will be capable of guiding the business into the future and preserving the legacy of the company.
- The owner will realize a sale price for the business or otherwise extract enough equity from it to be able to accomplish his own goals.
- The owner will separate himself from the business on his own timeline, divesting himself of responsibility for it according to his own preferences.
Too often business owners do not plan for exiting their businesses. Because they don’t plan, they have unhappy outcomes, including failing to find a buyer, walking away with far less money than expected, or working far longer than they wanted to either for themselves or for the new buyer.
Avoiding these problems is exactly what the planning process is for. With enough time, work, and the right strategies, even shaky businesses can be made strong and sold at a profit. If exit planning is shining a bright light on a business and then cleaning or fixing up the weaknesses revealed, it’s never too early to take that first step of exit planning because optimizing a company’s processes and profitability are always good goals!
At Prometis Partners we know this process is challenging for nearly everyone who has to go through it. It’s our mission to help our clients navigate it so they can make their businesses better right now and more sale ready when that time comes in the future. Do not be like the vast majority of owners. Begin planning for your exit early to have more options and better flexibility in your future.