Small-business owners are often mired in the day-to-day tasks of running their business. Few will have given thought to the end-game strategy of their business in the event of retirement or an unforeseen circumstance like separation or divorce. But the lack of an exit strategy has many implications for the long-term viability of a business. Not just for start-ups or big enterprises, an exit strategy is crucial to formulating a plan for the business’s growth and laying the groundwork for future success with or without the founder.
All things must eventually come to an end, and for a small-business owner, this could mean they’ve reached capacity to take their business further and would like to leave the business with those who have the right skills or knowledge to continue growing it.
In the event of a buy-out or acquisition, planning an exit means business owners have time to get their financial house in order, properly assess the business’s value, find the right buyer and negotiate the sale at the time of their choosing rather than have the sale foisted on them under less favourable circumstances.
Why don’t small-business owners consider their exit strategy?
According to a UBS Investor Watch report, 48 per cent of business owners who want to sell have no exit strategy, perceiving the exit point to be so far off in the future it doesn’t even warrant thinking about. Alarmingly, the UBS report points out that most business owners also don’t have a full understanding of what takes place in the selling of a business, with 75 per cent of owners believing they can sell their business in a year or less on top of the 58 per cent who have never even had their business formally appraised.
Further research shows that 20 per cent of small businesses fail in their first year, 50 per cent within five years, and around 60 per cent within ten years. With such a varied timeline, planning an exit strategy also creates more stability and certainty for the business and gives it the best chance of survival.
With a limited budget and manpower, small-business owners must maximise their business’s capacity to operate without them. This means they must have key personnel trained and ready to take over in the event they are unable to temporarily or permanently. They must also set a threshold for potential mergers or acquisitions from other companies and decide on what price they would be comfortable to settle for their business.
Founders must leave in place processes that enable the business to be run as smoothly as possible and delegate functions to those in the best position to perform them. Whether they’re preparing for acquisition, an IPO, management buyout, family succession or merger, key systems are essential to retaining the character and purpose of the business.
The bottom line is it’s never too early or too late for business owners to start planning their exit strategy. Only then can they hope to leave the business on their own terms rather than risk becoming a victim of circumstance.
