Planning an exit strategy for your business

By Anita Jaynes on 26 October, 2021

Sponsored by Purple Lime

When you first start a business, the last thing you think about is leaving it behind. But after some years, when your business is successful and growing, you might start to think about what will happen when you decide to step away. Will the business keep going without you, or will all of your hard work crumble into dust?

For most business owners, the ideal is for the company to continue after they’re gone. After all, you may have spent years or even decades pouring your blood, sweat and tears into building that business from the ground up, which is something to be incredibly proud of. But if you want your business to outlive your working life, you need to have an exit strategy in place.

What is an exit strategy?

An exit strategy does exactly what you think it would – it is a strategy for how and when you will exit the business. You are a key person to your business, so this big step requires some careful planning to ensure the business can still grow and thrive without you at the helm to guide it. Exit strategies come in all sorts of shapes and sizes, with some business owners grooming a protégé to take over from them, and others want to sell the business onto another business, or to an external investor. 

You might decide to step back from your business for a number of reasons. You might have reached your retirement age, decided you want to pursue another venture, or take a break from work before you change the direction of your career. The problem is, most business owners don’t think about an exit strategy until they get to that point – and by then, it’s too late. You need around 6-12 months of solid planning in order to properly plan an exit from your business, so an exit strategy is something to think about now, not later.

Start planning early

Once you have a stable, established and successful business, it’s time to start planning your exit strategy. After all, it’s never too early, and nothing is set in stone. If you write a strategy based on your passing the torch to someone internal, but later down the line decide to sell the business, you can amend your plan – and a lot of it will still be relevant. Even if the plan just stays dormant at the back of a filing cabinet for the next 10 years, the fact that you have one puts your business in a much stronger position later on. 

Plan in stages

We recommend your exit strategy has three main phases to it: 1 year, 3 year and 5 years. This approach means you will have a roadmap in place that spans 5 years – 5 years to get yourself and your business in order before you step away. Over the course of these 5 year, 3 year and 1 year plans you will need to do things like identify, test and promote your chosen successors, enquire with any professional services about selling your business, conduct a market study to understand when the best time to sell your business might be (and to who), and to get your finances in order. By planning in stages like this, you are giving your business the best chance of success without you.

Get your finances in order

Finances are an important part of running any business, but they are critical if you’re looking to sell your business on. You will need to go back through your financial history to make sure everything is all in order – at least 5 years back. Most buyers will want to see a minimum of 3 years financial records, but some will want to go back as far as 5, so it’s best to talk to an accountant and make sure your accounts are neat and tidy. 

This is also a chance to plan out your future growth and showcase the potential of your business. By putting together a growth plan, marketing strategy and sales forecasts (covering both long and short-term), any potential investors can be confident that your business is profitable, and that there is room for growth in the future. You should pay close attention to the state of your finances because this can be a deal breaker at a critical moment. A solid set of financials can make a real difference to your ability to sell your business, and how much you’re able to get for it.

Mark your successor

Choosing who will take up your job when you step back is always a tough decision, but it can be easier for some than others. You might have someone in mind for the role for years in advance, or you might have to start the search from scratch. Either way, this is something you can only really do once you’ve decided to start the 5-year plan, because you need to know who is in the business and who will be the best fit.

Once you’ve narrowed down your choices, have some conversations, maybe do some interviews and generally figure out who you would prefer to take on your role. Maybe you want one person, or a team of people to run the business between them. Then start gradually transferring some of your responsibilities onto them. This is best done as early as possible so that they can get as much training and experience from you as possible before you exit. Only you will know what will work for your business, so take some time to make the right decision.

Make yourself redundant

The only point you will know that you can confidently step back from the business is when you have made yourself redundant, and you can see the business working without you in practice. This means you will need to spend some time redistributing your duties, training the relevant people, hiring employees or agencies for certain jobs, and putting a succession plan in place. We recommend you give any new leadership at least a year to prove themselves before you step back.

Don’t forget, you only get one chance to sell your business, so you want to make sure you get it right. That may mean talking to some professionals to build a picture of your exit strategy, and support to put it in place. At Purple Lime, we are here to support business owners drive their business forward, even when they decide to step back. We can act not only as your outsourced finance department but consult on your exit strategy from start to finish. If you would like to know more, please get in touch by emailing hello@purplelime.uk.com, or calling us on 01249 691360.

Visit Purple Lime online at: www.purplelime.uk.com