Why You Need an Exit Plan as a Business Owner

A Business Valuation as Part of Your Exit Strategy

Start Your Business Exit Strategy with a Business Valuation

For most business owners, the goal of running a business and creating a profit is top of mind. However, developing an exit strategy is a vital consideration that you make sooner rather than later. Unfortunately, many business owners often overlook and ignore this until significant changes occur. You need a business exit plan.

This is because an exit plan or strategy lays out the ways in which a business makes progress moving forward. Without a plan in place, business owners and stakeholders are at risk of encountering issues when the direction of the enterprise changes course.

Regardless of when drafted, however, an exit plan is strengthened by a certified business valuation performed by a member of the Business Appraisal FL|GA|HI team.

 What is an Exit Strategy?

 An exit strategy is a plan that lays out how an entrepreneur will go about selling his or her ownership of a company to interested investors or another company.

These plans are often thought of as describing the ways in which a business is ended. However, it also helps ensure that the future state of a company makes progress toward achieving long-term goals. These goals may include implementing new leaders, maintaining financial stability, or pivoting directions.

Common Types of Exit Strategies

Potential buyers drives the exit strategy steps. Whether your exit strategy is to a financial buyer, private equity, strategic buyer, management buyout, or family member, the proper steps must be taken, and strategic planning must be implemented. Taking the right steps stops the process from being time-consuming and leads to a smooth transition.

You can also read about a business appraisal for estate planning.

Specifically, if selling a successful business, the plan will enable the owner to reduce their ownership stake in the company while maximizing profits. On the other hand, if the business is doing poorly, a solid exit strategy will help the business owner minimize their potential losses.

Either way, a proper exit plan should help any business — regardless of its finances — ensure future opportunities for the company.

 What are the Parts of an Exit Strategy?

Specifics of an exit strategy vary by business. Regardless, these plans describe all steps needed to sell or close the business by considering the various stakeholders of the business, finances, and operations.

Additionally, all plans identify the true value of the business, which helps establish the foundation of the company in the future.

 Why is a Business Appraisal needed to create an Exit Strategy?

A key component to drafting an exit plan is a certified business valuation. This is because a valuation professional is needed to suggest the value of the business before any transfer of ownership could ever occur.

An accredited or recognized business appraisal will ensure that you attract more serious bidders, safeguard your investment, and maintain your position during negotiations.

When it comes to exit planning, a valuation tends to occur in two stages. Thus, resulting in two types of valuations: preliminary and complete.

A Business Valuation’s Two Stages

The preliminary valuation is the first stage and accounts for roughly 60% of the overall price. Although this stage does not include a written value judgment, it does lay the foundation for the whole valuation.

A complete valuation makes needed adjustments after analyzing all supporting data to result in a written report of your company’s value.

Obtaining an independent appraisal is important because it will establish the foundation for your future business plans — regardless of the possible buy or sell date.

 Which Exit Strategy is Best for You?

Many business owners tend to ask about which exit strategy is the best option to employ. However, it is crucial to keep in mind that the ideal exit plan greatly depends on the type and size of your business.

This is because the number of shareholders and founders in the company will greatly impact the number of interests at hand and the subsequent choice of an exit strategy.

For example, a partner in a law firm might be best suited by selling their ownership stake to an existing partner. Meanwhile, a solo entrepreneur or small business might benefit by profiting as much as possible before selling through a business broker or the owner closing the business altogether.

Please read what you need to know about small business valuations.

What should I do to get Started on My Exit Strategy?

If you are hoping to establish an exit strategy, be prepared to gather a variety of documents to move forward.

For a professional appraiser to be able to conduct their research, for example, you will need to provide specific data, paperwork, and financial information. The more current and up-to-date documentation you can offer, the more accurate of a business valuation you will obtain.

Some of the basic documentation you need for a company valuation includes:

• Your current capital structure
• Your financial statements over the last three years
• Tax returns from the last three years
• Legal papers
• Registration records
• profit and loss summaries from the last three years

Business Exit Planning Conclusion:

Establishing a proper exit strategy for yourself is vital for your business. Doing so will ensure that you can reduce your stake while maximizing profits whenever possible. Although an exit plan involves many components, a crucial part of such a plan is obtaining a certified business valuation.

Consult BA FL|GA|HI team members today to start creating a business exit strategy for a smooth departure from business ownership on your terms.

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