Building Your Business’s Exit Strategy

By John Connor | Vice President & Commerical Loan Officer | Lincoln Branches

Building a successful business takes vision, hard work, and dedication. However, as important as launching and growing your enterprise is, planning your business’s exit strategy is equally crucial.

This process is often underestimated, requiring time, patience, coaching, and continued refinement to maximize value and achieve important non-financial goals.

Whether you’re planning to retire, pursue new ventures, or capitalize on your hard work, having a well-thought-out exit strategy is essential. Here are five key questions to ensure you’re prepared for this significant transition:

1. What Are Your Personal and Financial Goals? The first step in crafting an effective exit strategy is understanding your personal and financial objectives. Consider your next steps and long-term personal goals: Do you plan to retire and sell the business? What are your financial needs? How much control do you wish to retain post-sale? Clear answers to these questions will save time and help determine the right potential buyer.
2. What Is the True Value of Your Business? Understanding your business’s true value is crucial for setting realistic expectations and ensuring fair compensation. To accurately assess your business’s worth:
   • Conduct a professional valuation: Hire an experienced business appraiser to evaluate your company’s financial health, market position, and growth potential. Look for professionals with a CVA designation.
   • Consider market conditions: Stay informed about industry trends and economic factors that could influence your business’s value and sale timeline.
   • Understand the impact of your role: Recognize how your involvement might affect the appraised value of the business.

A comprehensive valuation informs your asking price and identifies areas needing improvement to maximize your business’s worth. This step is critical, potentially revealing the need for additional time to achieve specific financial goals.

3. Who Are Your Potential Buyers? Identifying potential buyers early streamlines the exit process and allows you to tailor your strategy. Buyers may include internal (family, partners, key employees), external (competitors, private equity firms), or financial (investors focused on ROI) entities. Each type of buyer has different priorities and expectations, influencing your business preparation and marketing efforts. Understanding your ideal buyer helps you plan the timing and transition process effectively.
4. How Will You Transition Your Role and Knowledge? A smooth transition is essential for maintaining business stability and preserving value. Develop a succession plan to identify and train successors or a management team well in advance. Documenting operational procedures, client relationships, and proprietary knowledge facilitates a seamless handover and enhances attractiveness to potential buyers. Transparent communication with stakeholders, including key partners such as landlords or lenders, about the transition is crucial to maintain trust and loyalty.
5. Who Is on Your Exit Planning Team? Before marketing your business for sale, assemble a team of experienced advisors to navigate tax, estate, and legal implications:
   • Business exit planning coaches can save time and energy by directing you to seasoned advisors.
   • CPAs help understand tax consequences and strategies to minimize liabilities.
   • Attorneys advise on the advantages of stock versus asset sales, legal implications like non-compete agreements, and documents you may need to sign.
   • Certified Financial Planners assist in defining financial needs and goals, guiding investment of sale proceeds.
   • Commercial lenders provide insight into acquisition financing challenges for potential buyers.

“Exiting or buying a business is an emotional and financial rollercoaster, so having the right team in place and a well-defined plan and process leads to better outcomes for you, your employees, and the buyer.”

By addressing these questions and having a comprehensive plan, you can avoid wasting time with unsuitable buyers, maximize sale value, and reduce frustrations. Early planning for your business’s exit strategy and seeking advice from professionals, like those at Midwest Bank, are key to navigating this complex process effectively.

Get a free business consultation today! Contact us to get started.