Business Exit Plan & Strategy Checklist – A Complete Guide

Handing over the keys at the closing isn’t sufficient. What you truly need is a well-crafted strategy—an exit plan strategy.

An exit plan strategy is more than just a term; it’s a meticulously designed plan to guide your business’s departure. While the specifics of exit plans may vary, they all share key components.

Three essential elements that every business exit strategy must encompass are:

1. Company Valuation: The valuation process entails three crucial steps. First, assess your business’s current value. With this value in hand, chart a course to not only safeguard but also enhance it.
2. Array of Exit Choices: Once you’ve established a range of values for your business and devised strategies to bolster its worth, delve into potential exit routes. These avenues can be categorized into internal, external, and involuntary options.
3. Assemble Your Team: Construct a team primed to facilitate the creation and execution of your exit blueprint. This team could comprise an M&A advisor, attorney, accountant, financial planner, and business coach.

If the sale of your business is on the horizon, meticulous planning is the linchpin to optimizing the price and ensuring a triumphant transaction. This discourse equips you with a steadfast grasp of these elements and demonstrates how to ingeniously amalgamate them to mastermind a seamless departure from your enterprise.

Business Exit Plan Strategy Component #1: Valuation

Embarking on a successful exit plan strategy demands a solid foundation, and that starts with a comprehensive valuation of your enterprise. The valuation process unfolds in three crucial phases, commencing with an incisive evaluation of your company’s present value. With this appraisal in hand, the subsequent steps involve formulating a dual-pronged approach: safeguarding and augmenting your business’s value.

Let’s delve into each of these vital elements—evaluation, preservation, enhancement—in greater detail.

Assess the Value

At the forefront of any exit strategy lies the imperative task of evaluating your business’s current valuation.

Key Considerations Before Initiating the Valuation Process:

• The Evaluator: Optimal evaluation hinges on the expertise of a professional who boasts tangible involvement in buying and selling businesses. A background in business brokerage, mergers and acquisitions, or investment banking is paramount. Proficiency in navigating transactions akin to your enterprise’s scale and intricacy is essential. While industry-specific familiarity is advantageous, it is not a prerequisite. Many individuals possess academic qualifications for appraisal but lack hands-on transactional know-how. Prospective appraisers include accountants, CPAs, financial advisors, and business appraisers. Vital criteria encompass real-world M&A experience. Only through practical involvement in comparable business transactions can an appraiser adeptly address the nuanced report intricacies and effectively field the ensuing barrage of inquiries.
• Actionable Step: Inquire into the appraiser’s transaction history and the proportion of their professional focus dedicated to business transactions versus other undertakings.
• Methodology: The majority of business appraisers perform valuations for legal objectives such as divorce proceedings, bankruptcy, and tax planning. Such valuations diverge from assessments tailored to business sales. Distinct methodologies and resulting valuations underscore the contrast. Engaging a practitioner seasoned in tangible business transactions ensures a valuation attuned to the realities of the market and prospective buyers.

Confidently shape your exit strategy by cultivating a valuation founded on real-world insight and tailored precision, primed to captivate discerning buyers in the dynamic business landscape.

The limitations of a verbal opinion of value are:

• In the realm of multiple ownership, potential confusion or divergence over a pivotal valuation component can surface. Should such a situation arise, the path to resolution necessitates compelling documentation from each perspective.
• Regrettably, the absence of an exhaustive written report presents a challenge when collaborating with fellow professionals on your team—be it legal experts, accountants, financial advisors, or insurance consultants. This shortfall in documentation obstructs the quest for a second opinion, as a fresh appraiser embarks on a clean slate, inadvertently prolonging the timeline and incurring additional costs.

For these compelling reasons, we ardently advocate the merits of a comprehensive written report, especially if an immediate business sale isn’t part of your agenda.

Our experience has illuminated scenarios where CPA firms assigned valuations with merger documentation—often confined to a mere page or two—casting a shadow over the valuation’s foundation. A glaring instance emerged wherein a CPA firm’s interpretation of cash flow was cursorily denoted as “cash flow,” an ambiguous descriptor devoid of standardized definition.

This ambiguity bore the potential for significant valuation errors, potentially skewing results by a conservative 20% to 25% margin. The remedy lies within a meticulous written report, where appraiser assumptions are meticulously documented, facilitating subsequent review and discussion.

It’s crucial to bear in mind that procuring professional valuation services entails obtaining a seasoned perspective—a viewpoint that may deviate from a prospective buyer’s stance. Diverse enterprises encompass varying valuation spectrums; some exhibit a narrow value range (perhaps 10% to 20%), while others manifest substantial fluctuations depending on the buyer, often fluctuating by an astonishing 100% to 200%. Engaging in a valuation endeavor unveils the expansive tapestry of potential values your enterprise can attain.

As an illustration, our approach to business appraisals champions realism over artificial precision. We eschew the deceptive allure of exact figures, such as $2,638,290, in favor of a more pragmatic valuation range, say, $2,200,000 to $2,800,000. The expertise of a seasoned M&A professional comes into play, offering insight into your likely position within this spectrum and the rationale underpinning it.

Preserve the Value

Once the parameters of your company’s valuation spectrum have been set, the imperative task at hand is to cultivate a comprehensive preservation strategy. It’s essential to recognize that value preservation stands apart from value augmentation, primarily focused on averting potential declines.

Your devised strategy must encapsulate well-defined tactics to safeguard against catastrophic losses across these pivotal domains:

• Legal Safeguard: The specter of litigation looms, bearing the potential to erode your company’s worth. Your concerted effort, supported by a proficient legal team, is requisite to counteract and mitigate the adverse ramifications of legal disputes. Undertake a comprehensive legal audit, orchestrated by your attorney, to identify and rectify any existing concerns or disparities.
• Risk Mitigation via Insurance: Collaborate with your CPA, attorney, financial advisor, and insurance specialist to orchestrate a strategic dialogue targeting risks amenable to reduction through judicious insurance planning. Potential perils to address encompass permanent disability, facility-related crises (fires, floods, natural disasters), and analogous contingencies.
• Tax Liabilities: Confer with your CPA, attorney, financial advisor, and tax planner to enact a concerted approach towards curbing potential tax liabilities. This strategic consultation aims to optimize your tax profile within the parameters of legality and fiscal prudence.

It’s important to note: The contours of your value preservation blueprint are intrinsically intertwined with your exit alternatives—a crucial facet we’ll delve into shortly. Your exit strategy entails a web of interdependencies that underscores the complexity of this planning endeavor. The synergy of a proficient team is indispensable when orchestrating your exit strategy.

Only subsequent to a robust framework securing value preservation can you pivot towards proactive measures aimed at augmenting your company’s value.

Increase the Value

The journey to amplify the worth of a business is far from formulaic—it’s a custom path sculpted exclusively for your enterprise.

Initiating this transformative strategy involves an exhaustive dive into your company’s intricacies: a comprehensive analysis encompassing risk variables and avenues of growth. Equally pivotal is the insight into your potential buyer’s persona—a revelation facilitated by your adept broker or M&A advisor, offering key insights into the preferences and expectations of discerning marketplace buyers.

To bolster your business’s value, consider these actionable measures:

• Diversify Customer Base: Limit overreliance on a single customer source.
• Minimize Employee Dependency: Foster self-sufficiency to mitigate reliance on specific staff.
• Reduce Supplier Dependency: Bolster resilience by avoiding excessive supplier reliance.
• Boost Recurring Revenue: Elevate sustained income streams.
• Expand Repeat-Customer Network: Cultivate a broader base of loyal patrons.
• Streamline Operations: Document and refine workflows for heightened efficiency.
• Empower Management: Incentivize and build a capable leadership team.
• Enhance Aesthetics: Elevate the business’s visual appeal.
• Upgrade Equipment: Replace outdated or worn machinery.
• Settle Equipment Leases: Fulfill lease commitments for financial relief.
• Minimize Employee Turnover: Foster a supportive work environment for staff retention.
• Innovate Products/Services: Differentiate offerings for a competitive edge.
• Safeguard Intellectual Property: Document and protect your unique assets.
• Broaden Offerings: Introduce new product/service lines for diversified income.
• Implement Scalable Processes: Establish repeatable systems for rapid growth.
• Improve Financial Metrics: Elevate EBITDA or SDE figures.
• Strengthen Market Entry Barriers: Enhance competitive barriers to secure market position.

Keep in mind, a professional advisor can help you navigate these steps tailored to your business’s distinct context. We’ve observed instances where business owners invested substantial time into value-increasing initiatives, only to find they held little appeal to potential buyers.

Direct your efforts wisely with professional insights to maximize your business’s value.

Business Exit Plan Strategy Component #2: Exit Options

Once you’ve established a value range for your company and devised strategies for value preservation and growth, the pathway to exploring your potential exit options unfolds.

It’s crucial to note that these steps are inherently interconnected. While you can’t precisely define your exit options without a foundational valuation, you also can’t effectively structure your business valuation without exploring viable exit routes. A seasoned professional can guide you in sequencing these steps optimally or advise on the viability of concurrent exploration. The significance of real-world expertise cannot be overstated.

Broadly, all exit avenues fall within three overarching categories:

• Inside: A buyer emerges from within your company or family circle.
• Outside: A buyer arises from beyond your immediate business or family sphere.
• Involuntary: Encompasses involuntary scenarios such as unforeseen events like death, divorce, or disability.

Take heed of this pragmatic guide to unraveling your exit strategy.

Inside Exit Options

Exploring Inside Exit Possibilities

Among the array of inside exit avenues are:

• Transitioning ownership to your offspring or other family members.
• Facilitating ownership transfer to your dedicated workforce.
• Selling your stake to a fellow co-owner.

Inside exits necessitate a seasoned professional well-versed in the dynamics of family enterprises. These pathways often traverse emotional terrain, demanding adept navigation with discretion, grace, and impartiality. Effective tax planning is also paramount, given potential double taxation if funds for the business purchase originate from within the company. Moreover, inside exits frequently yield more conservative valuations than their external counterparts.

Outside Exit Options

Beyond the business’s confines, external exit options encompass:

• Sale to an individual investor.
• Sale to another enterprise or competitor.
• Sale to a financial buyer, like a private equity consortium.

External exits typically yield optimal value and form the domain of specialization for business brokers, M&A advisors, and investment bankers.

Involuntary Exit Options

Involuntary exits, stemming from unforeseen events such as death, disability, or divorce, demand prudent consideration. Your strategy must proactively account for these possibilities, however remote they may appear, and encompass measures to forestall or alleviate potential ramifications.

Business Exit Plan Strategy Component #3: Team

Team Members

As the final stride, assembling a proficient team stands paramount in orchestrating the blueprint for your exit plan strategy. Acknowledge that these steps are interwoven, not strictly linear, with potential for simultaneous execution. Cultivating a dedicated team equips you to adeptly navigate the array of options and their optimal sequence, fostering a seamless path forward.

Your Essential Team

The core members of your team should include:

• M&A Advisor/Investment Banker/Business Broker (for external exits)
• Attorney: Well-versed in estate, financial, tax planning, M&A, and family business matters.
• Accountant/CPA: Experienced in auditing, tax planning, and retirement strategies.
• Financial Planner/Insurance Advisor: Expertise in estate planning, business continuity, benefits, and retirement plans.
• Business Coach: Facilitates strategic changes, infrastructure building, and management team enhancement.

Locating the Right Professionals

Optimal professional selection is often achieved through referrals from trusted acquaintances who’ve personally collaborated with the specialist. Trust your instincts, as harmonious chemistry between you and your team is pivotal.

The Annual Audit

We advise convening your team of professional advisors for an annual review aimed at conducting a comprehensive business audit. This proactive approach serves to preemptively identify and address potential issues. As the saying goes, “An ounce of prevention is worth a pound of cure.”

Your advisors are a valuable knowledge repository. This annual gathering presents an opportunity to synchronize their perspectives and ensure alignment across your legal, financial, and operational strategies. Conducting a group meeting—whether in person or virtually—facilitates efficient coordination.

A potential agenda might involve assessing the following:

• Your operational documents.
• Emerging liability concerns your business has taken on.
• Notable increments in business value, necessitating adjustments like increased insurance coverage or refined tax planning.
• Capital requirements.
• Adequacy of insurance provisions through an audit and review of existing coverage.
• Holistic tax planning encompassing both personal and corporate aspects.
• Comprehensive estate planning, encompassing a thorough evaluation of net worth, business valuation, and any required adaptations.
• Personal financial planning.

Summary

Embarking on the journey of selling your business warrants a well-structured exit plan, poised to address pivotal inquiries:

• What is the precise valuation of my business and its potential suitors?
• What price can I realistically command within the market’s realm?
• What sales figure must I attain to realize my personal goals?

By tactically executing the strategic maneuvers outlined in this discourse—forming an exemplary team of professionals and harnessing their collective expertise—you are poised to navigate the pathway toward a triumphant business sale. With unwavering confidence, you can then seamlessly pivot toward your forthcoming expedition.