Planning an exit strategy

For business owners, planning an exit strategy is perhaps one of the tasks that are put on the back burner more than any other. Business owners and entrepreneurs are masters of procrastination when it comes to thinking about a time when they will decide to no longer run the company and ride off in to the sunset. However, it is very important to have a plan in place for retirement purposes, as well as, for the sake of loved ones and employees of the company (if there are any other than yourself).

There are several ways an exit strategy can look like and much of it depends on your life situation. For instance, if you have children that may be capable and willing to take over the company when that time arrives, then that can be your exit strategy. Although, if you have more than one child vying for that role, then that may not be an easy decision to make. If you do not have children or they are not interested in running the business then, you can look at a replacement from within your company that is not family. You can still have the ownership of the company, or at least a majority of it but you can step down as the actual decision maker and perhaps take an advisory role if you want to. By owning shares, it allows you to still earn money in retirement outside of the package that you should pay yourself on your exit.

Another exit option can be to sell the company and use that money to live nicely and to invest. I would strongly recommend that you have an expert appraise your business to see what price you can ask for it. If you choose this option, you should still prepare a retirement package for yourself as this will likely be the last compensation you will earn from this business and you need to live nicely in retirement.

Sometimes, a business owner does not have the opportunity of choosing when it is time to retire, usually due to health issues or family situations. For this reason, if your exit strategy is not obvious, such as handing it over to an only child that is waiting in the wings, I would set my options in a list whereby I would list my ideal option first but only under certain criteria. If the criteria for the first option can not be met at that given time then I would move down to the second best option for me. For instance, if my ideal scenario is to promote someone from within but, I do not have someone currently employed that I feel comfortable with at the helm then perhaps I would look to sell it. Conversely, if my plan was to sell it and live off that money, but the amount I can get for the business at that point in time is not high enough for me to justify a sale, then maybe I would look to continue owning the company but step down as President and bring someone in either from within the company or outside that I trust and can quickly train. This way, I still have some ongoing compensation in retirement.

How your exit strategy looks like depends greatly on your financial situation, the size and success of your business, whether there are capable employees working for you and whether or not you have children or other family members that can take over for you. Whatever the case may be, you should write out your exit strategy on paper (if you don’t write it out and something happens to you then no one will know what the exit strategy is) and you should do it as soon as possible because you can’t always foresee when it is time for you to have to say goodbye to your business.