An exit strategy plan is a comprehensive document that outlines how a business owner will exit their business at the most favorable price. Here, we explore the critical elements that should be included in an strategy plan to maximize the chances of a successful exit.
Table of Contents
Purpose of an Exit Strategy Plan
An exit strategy plan goes beyond listing the options for exiting a business. It encompasses all the steps that occur before and after the plan is created. This plan serves as a blueprint to:
- Enhance Business Valuation: Increase the overall value of the business.
- Ensure a Successful Sale or Transfer: Maximize the likelihood of achieving a sale or transfer of ownership.
- Maintain Control: Keep control over the exit process.
- Achieve Desired Outcomes: Secure the outcome you want on your terms.
Core Elements of an Exit Strategy Plan
A well-crafted strategy plan includes seven core elements:
- Objectives Statement: Clearly define your objectives in terms of price, expected dates, minimum requirements, and deal-breaker terms.
- Business Valuation: Conduct a thorough assessment of the business’s value.
- Readiness for Sale: Ensure the business is prepared for sale.
- Valuation Enhancement Opportunities: Identify opportunities to increase the business valuation.
- Exit Strategy Options: Outline the various strategy options available.
- Qualified Buyers List: Compile a list of potential qualified buyers.
- Action Plan: Detail the actions required to achieve your objectives.
If the timeline for the strategy is more than 2-3 years away, some sections may be broad and lack detail. Like any good business plan, a strategy plan should be reviewed and updated regularly, with new details added as they become relevant.
Readiness for Sale and Transaction
Readiness for sale includes assessing the business’s financial performance, systems, and reporting. However, it also involves ensuring that all necessary documents are ready for due diligence, legal structures are appropriate, and other deal factors are in place.
Timing for Creating an Exit Strategy Plan
The best time to create a strategy plan is as early as possible. For startups, a strategy plan is crucial for managing a dynamic environment where plans can change rapidly. An effective strategy typically takes 1-2 years to implement, and sometimes longer if significant changes are needed. Ideally, you should have at least two years of financial statements that justify the expected sale price.
Professional Advice for an Exit Strategy Plan
Creating an effective strategy plan often requires advice from experienced professionals, including:
- Accountant: Provides guidance on supporting documentation, due diligence, and tax implications.
- Financial Planner: Advises on the investment of sale proceeds.
- Solicitor: Offers advice on sale terms, negotiation options, contract issues, and executing the deal.
- Broker or M&A Adviser: Assists with buyer identification, discussions, negotiations, and deal structure.
- Business Valuer: Conducts business valuation and prepares the business for sale.
Keys to a Successful Exit Strategy Plan
Two key features make a strategy successful:
- Early and Detailed Preparation: Start planning early and prepare thoroughly.
- Multiple Options: Having multiple options gives you leverage in negotiations.
When a business owner is forced into a strategy, it is challenging to get the desired terms and price. Buyers rarely need to make an acquisition by a specific date, so being prepared and having options is crucial.
Importance of an Exit Strategy Valuation
An exit strategy valuation is a business valuation specifically designed to identify opportunities to increase the business’s value before implementing the strategy. It highlights changes that can result in increased earnings and a higher EBITDA multiple, maximizing the business’s value.
Have you considered your strategy options? Is your business prepared for sale? Will you get the price you want for your business? If you need answers to these questions, contact WA Business Valuations. We can discuss your options and help you develop a successful strategy plan.