The importance of having an exit strategy

Updated Dec 3, 2019

Exit StrategyDuring this time of year, many business owners take the opportunity to both look backward over the year that is coming to a close and look forward and make plans for the coming year.

There is certainly no shortage of articles in trade magazines, blog posts or webinars on various aspects of strategic planning.

One of the topics we hope you are including in your strategic planning is the subject of exit planning. While relatively few green industry business owners currently are planning the sale of their business in the near future, the reality is that all of us must recognize our businesses will transition to new owners at some point – through a transfer to family members, a sale to employees or a third-party sale.

The only alternative is to go out of business.  Each alternative requires planning to achieve the objectives that you as the business owner have.  While our expectations may be that the time for a transition is out there somewhere in the future – five, 10 or 20 years – the reality is that for some, the time will come much more quickly than we expect.  So you may not have as much time to leave your exit strategy on the backburner as you currently believe.

In the event you have a little down time now, here are some things that you can do to make a positive beginning.

1. Begin to clarify your objectives regarding business transition. In a perfect world, how long would you want to maintain your ownership and stay active in the leadership role of your business? Do you know who you would like to transition your business to? Have you discussed your plans with them? Do you understand the likely economic impact, after taxes of a transaction?

2. Do you understand the value of your business? Many business owners have serious misconceptions about the value of their business based on what they have heard on the street. They may have heard simple rules of thumb about business value without really understanding how these rules may be applied in their own situation. Of course, what you have heard that another business owner received for his or her business may not be accurate or the whole story. It is also sometimes difficult for a business owner to understand the value drivers of his or her business and understand how they compare to another business.

3. Do you have a plan to improve the value of your business? That is one of the bright spots of exit planning because the same efforts that improve the value of your business will likely make it a better, stronger business even if you have no current plans for a business transition.

4. Do you have a plan to preserve the value of your business? In most cases, a business is the business owner’s largest asset.

What would happen to your business is the event of a natural disaster? What would happen to your business if you died or became disabled or for some reason were not able to give leadership to the business for an extended period? Are there people, inside or outside of your business that could provide leadership in your absence? Have you discussed the subject with them?

Developing a disaster plan may be one of the best insurance policies you could ever buy. Also, during this time of the year, business owners may be contemplating a more immediate transition of their businesses. Others may be contemplating a business acquisition strategy.

EDITOR’S NOTE: This article was written by Ron Edmonds with The Principium Group.

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