What is an exit strategy?

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If you own or run a business, it is important to have a long-term plan in place to secure the future of your business, turn your business into an asset as well as create wealth for yourself the Owner, once you have decided it is time to move on. Exit strategies give business owners the peace of mind they need to act confidently and decisively until the last moment, protecting the interests of the business and the individuals, and most importantly increase the value of the business, thus enhancing the opportunity for personal wealth after years of hard work. In this article, we will answer the question ‘what is an exit strategy?’, as well as looking at how it can affect your exit from a business and why it is important to have a solid exit strategy in place.

What is an exit strategy?

An exit strategy is a plan of action that business owners or shareholders use to sell their stake in a company or to wind down the business and liquidate its assets. An exit strategy can be used in a variety of situations, such as when the owner wants to retire, when the business is no longer profitable, or when the owner wants to sell up and move on to another venture. 48% of business owners don’t have an exit strategy, and this can really damage their long-term wealth management. (At Biramis, we help clients build and achieve an exit strategy for wealth creation purposes rather than deal with distressed exit sales).

It is important to understand that an exit strategy is not the same thing as an exit transaction. Exit strategies are strategies that are put in place to prepare for an exit date, usually years before the actual exit takes place. An exit can be planned or it can be unplanned, such as distressed exits which are prompted by life circumstances including ill-health, although it could be argued that a good exit planning strategy should take into account all contingencies that may arise, and protect against a distressed exit. A planned exit strategy allows business owners to build a clear vision of how they will exit the company in the way they want to while maximising exit value both for themselves and for shareholders.

What does an exit strategy include?

Developing an exit strategy is all about planning for the future. In order to sell your stake in a company or sell your whole company for the maximum amount, it is important that the company is performing well and operating smoothly for years in advance of your exit date. An effective exit strategy, which effectively is a value building strategy, incorporates many different elements of management and succession planning, including:

• Due diligence
• Performance consistency
• Effective management
• Corporate structure
• Succession planning
• Revenue growth
• Operational excellence

In other words, by taking steps to make sure your business is operating as effectively as it can in the years preceding your exit, you can maximise the value of your exit and secure your own financial future.

Planning your exit strategy

Usually, we recommend that our clients start planning their exit strategies at least three to five years before they want to exit their company; the more time you allow yourself to plan, the more successful your exit strategy will be. Value creation, restructuring, and performance optimisation all take time, and if you exit before your company meets its full potential, you could be missing out on a huge amount of wealth. To understand the answer to ‘what is an exit strategy?’ a little better, let us take a look at a few elements of a successful exit strategy in more detail.

Value building

Value building is all about increasing the value of your company so that it’s worth more when you sell it. It takes time, and it is not about simply adjusting your reported performance to make it look good on paper: It is about improving all areas of management that will directly translate into growing the capital value of your business and creating a scalable business that future buyers can see further potential in, once they have bought it. At Biramis, we have a set of management performance units and equity value levers we activate in our clients’ businesses to increase value.

Due diligence

Before exiting your business, it is important that you have carried out all the due diligence required to ensure that future buyers won’t find anything offputting in your company’s records. This means carrying out risk assessments, ensuring that all title deeds, contracts, and documents are in place and that the measures that a company has taken to ensure a successful business sale can be proven to create predictability and sustainability going forward into the new ownership. Too many business owners leave this to the last minute.

Succession planning

Succession planning is perhaps one of the first things that most people think of when considering an exit strategy. Succession planning means planning for when and who you will bring in to take over your role in the company once you’ve left. This could be your child, relative, an existing employee, your current management team, or a new hire. A key aspect of succession planning is setting boundaries of confidentiality both internally and externally, especially if you’re bringing in a new hire to take over.

Effective management

As a business owner, you need to ensure that your company is effectively managed in the years leading up to your exit and is closely linked to the above-mentioned succession planning. This means having the right team in place to take the company forward and making sure that they are all aware of your exit plans. Not only will this ensure that your business is smoothly run after your exit, but it also demonstrates a track record of good decision making to potential buyers up to the exit date. It is important to assemble an effective management team years, not months, before your planned exit date.

Why is exit planning important?

Exit planning is essential if you want to maximise the value of your company and secure your own financial future. Defining your exit strategy years in advance can help you to:

• Maximise the negotiated value at exit time having bundled it clearly and strategically
• Attract buyers willing to pay a good price rather than bargain seekers, perceiving your business on the edge of a distressed sale.
• Secure the future of your business
• Reassure your employees of their job security
• Reduce the stress associated with an exit, by not being on the back foot, and be confident about your value, because you can demonstrate and prove it, during attempts to discount your business, which is a typical negotiation challenge.

Planning your exit gives you the time to make sure that all aspects of your company are running as effectively as possible and create a business that is ready for sale. By taking the time to plan your exit, you are ensuring that you and your stakeholders will reap the rewards of the business you have built for many years.

Get in touch

If you’d like to know more about our services at Biramis, you can contact us today on [0161 8178052] or book a free business clinic via our contact page. We offer business clinics of 60-80 minutes during which we’ll get to know more about your circumstances and tell you more about how to plan and how our services can help you.



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