What does “exit strategy” mean to you and when do you think you should start thinking about it?
That’s not an easy question to answer without some context or specific examples. Here are a few:
- It (exit strategy) might mean how you intend to sell your business. Will you use a broker? Will you try to sell it yourself?
- It might mean saving, perhaps into a pension, while you run the business so you can retire regardless of what happens to the business; maybe you plan to shut the doors when the time comes and walk away.
- It might mean succession planning – training a family member or trusted right-hand person to manage the business after you retire. Maybe you’ll have a phased buyout for your successors. Or perhaps you’ll put your shareholding into trust for your family.
- It might mean you will build it to sell to a specific buyer or type of buyer. If you’re developing a new brand of vodka, for example, you might aim to sell to Diageo.
- It might mean building a business that is profitable and grows whether you are there or not so that you own a valuable asset, which you can sell easily as a going concern or take a passive income from after you put it under management.
With these thoughts in mind, when should you start thinking about it? In other words, how long will it take to develop your exit strategy and execute it to fruition?
If an exit strategy means example 1 to you, then you’re probably looking at 12-18 months. The others will take more time.
For instance, if option 4 is your choice, you may have missed the boat if you didn’t consider your exit at day -1, in other words before you even start the business.
For the other options, you at least need to start thinking about exit planning as soon as your business becomes profitable, the third phase of business. Why? Because it will dictate, or at least guide, how you use the profits.
Of course, this might all make sense logically, but you’re busy growing your business, you haven’t got time to think about exiting.
Except having an exit strategy is all about growing your business.
Have a look at those examples again. What do they all have in common?
They all involve (with the exception of example 1):
- making more money than you need today because you will invest for tomorrow,
- growing an effective team,
- delegating day to day tasks to other people
Which of those aren’t about growing your business today? The more day-to-day tasks you delegate, the more time you can spend on finding ways to grow your business and make more money. The more money you make, the more you can invest in, among other things, hiring great people, to delegate even more to.
This is succession planning in practice. It’s also how to build a more valuable business. One that is more sellable.
For privately owned businesses, having this kind of exit strategy is good business strategy.