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How Business Owners Can Thoughtfully Approach Exit Planning

By Lyle Solomon
Published: October 4, 2021 | Last updated: October 7, 2021
Key Takeaways

Whether you are selling to a new company or retiring from the business, you need a proper exiting strategy. Exiting without a sound strategy can prove to be a dangerous move for your business. The best exit strategy is one that fulfills all of your personal goals without putting the company at risk

Caption: Exit Plan

If you started your business from scratch, the chances are that you’ve invested a lot of your time and financial resources into growth. You have been through thick and thin trying to make your business successful, which makes it a part of you. Therefore, leaving that business behind can be a very difficult decision.

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Whether you are selling to a new company or retiring from the business, you need a proper exiting strategy. Exiting without a sound strategy can prove to be a dangerous move for your business. The best exit strategy is one that fulfills all of your personal goals without putting the company at risk. Here is how you can create a good exit strategy.

Decide On a Vision for the Future

Before you can even decide on when to leave, you need to determine why you are leaving. Are you looking to partner with another business and step down from your current position? Or are you looking to sell off your business entirely and retire? Either way, you have to decide and make plans accordingly.

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Not only will this help your business, but it will also help you better manage your life moving forward. Moving forward, you have to consider how you will cope with the lack of responsibility on your shoulders.

Budget out your future years

Once you are done making considerations for the life that you will be living afterward, you need to see if you will be able to sustain that lifestyle. Check your cash flow and look at your current expenses to find out how much you will need to live comfortably after you leave.

Now is as good a time as any to mention that exit plans can take a long time to prepare. In some cases, it can take two years, and in others, it can take up to five years to decide on a proper strategy. The time to settle on a plan depends on the complicated expenses of your company. An exit strategy is also the perfect time to evaluate your tax-saving possibilities. While selling a business might be one of the most significant financial decisions, it is also where you can save a lot on taxes.

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Find the Partners That Are Right for You

When making such a big move, you will need all of the help that you can get. You need a thorough strategy so that your business doesn’t run into any problems later on. This will require finding the best investment banker to help you lock down on your sale. Or, if you already have an investment banker, you need a proper advisor to guide you through the sale.

When choosing your specialists, you will have to select professionals with a great reputation and plenty of experience. They need to understand the niche your business is operating under and what is at stake in a sale. These specialists will also be able to help you find the right buyers for your business. Potential buyers should be serious about wanting to run your business to achieve further growth.

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Targeting Buyers and Marketing to Them

Chances are that you already have a buyer lined up to buy the business, especially if it is an acquisition. But if that is not the case, you will need to start searching. You will entrust your life’s work to them, so they should seriously take on the responsibility that running your business entails.

The most successful way to sell a business is to start by creating a competitive environment. This is also that this stage, ask potential buyers what they intend to do with your business.

You can see if they will be taking care of things within the company that is important for you. These could include employees you would like to protect or a specific culture you want to maintain.

Due Diligence

The next step in making a sale is working on the agreement. Buyers will first send you a Letter of Intent, a formal and legal way of showing that they want to proceed with the transaction. Once you accept the document, all you have to do is wait.

The buyers will conduct due diligence on your company to look for any potential flaws. During this process, they will also get a vivid understanding of how your company works. Of course, due diligence is where your team of specialists will shine. They will answer questions that buyers might have about the business. And with each answer, they will paint your company in a very positive light.

Once they complete their due diligence and do not find anything that could change their mind about the purchase, they will now move on to negotiations.

Legalities and Negotiation

This is the final step of the selling process for you, and this is where you will make your last stand. Buyers will now proceed to make your new offers, and you will have to decide which one to accept. There will be two parts of the proposal: the price and the terms.

It is essential to understand that you are in a similar position as the buyers. You want a win-win situation, and so do they. But buyers will rarely make an offer with both prices and terms. Therefore, you will have to be a little flexible.

Furthermore, good companies rarely ever make reasonable offers for price and terms. This is where you will have to negotiate with them about the state of your business and how it deserves more. You will have to make an excellent case for your company, as you want to have this better company to lead yours.

Making the Transition

Finally, now that you have completed everything, your exit strategy can fall into place. And as the transition happens, you can sit back and relax as you think about how you will spend your life after the transition. And once it completes, you will no longer be the owner of the company.

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Written by Lyle Solomon | Principal Attorney

Profile Picture of Lyle Solomon

Lyle Solomon has considerable litigation experience as well as substantial hands-on knowledge and expertise in legal analysis and writing. He graduated from the University of the Pacific’s McGeorge School of Law and now serves as a principal attorney for the Oak View Law Group

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