How to Create a Business Exit Plan

Most business owners would agree that an exit plan is important, after all, it plays a big part in their financial future.

But few business owners understand what is actually involved in exit planning and when they should start working on an exit plan.

Often the idea of exit is far into the future, but the outcome of your exit depends on how you choose to grow now.

The key is to start exit planning long before you’re ready to leave your business.

Recent family business surveys show that over 70% of business owners expect to exit in the next 10 years, yet only around 45% have an exit strategy in place.

Creating a comprehensive exit plan can be a detailed process, but it's well worth the effort. By investing in exit planning now, you can convert the value you create in your business to personal wealth. You’ll also have comfort that your business will be in good hands when the time comes for you to move on so you can transition in your time, and on your terms.

Exit Planning

What is an exit plan and why it is important for businesses

An exit plan is a documented strategy that outlines how a business will be sold or transitioned to new management. Your exit plan is important because it can help you maximise the value of your business, create various exit options and ensure a smooth transition to new ownership or management.

Once you have an exit plan mapped out, you can go about executing the strategy to achieve your exit goals.

Exit planning is a process that should start long before you are ready to sell or transition your business. By starting the exit planning process early, you can make sure your company is in the best possible position when it comes time to sell or transition.

"The Ultimate Freedom is a Business that’s Valuable, Scalable & Saleable"

Why do you need an exit plan?

There are a number of reasons to have an exit plan in place, even if you're not planning on leaving your business anytime soon.

First and foremost, an exit plan can provide much-needed clarity about your goals for the future:

  • What do you want to achieve with your life and your business?
  • When do you want to retire?
  • What kind of financial security do you need in order to feel comfortable walking away from your business?

Answering these questions now will give you a better sense of what steps you need to take so your business is on track to meet your future goals.

“At some point you will exit your business, that’s a given. The business may be sold, passed to the next generation or even liquidated. If you start planning for this while you have the runway, you will create better opportunities for your future, and in the process, you will build a stronger company with a higher valuation.

Sadly, most business owners don’t start the process of exit planning until it’s too late — it’s disheartening to see this play out.”

Simon Bedard, CEO, Exit Advisory Group

In addition, having an exit plan can help you avoid common pitfalls that can occur when businesses are sold or transferred without proper planning.

For example, many business owners fail to consider the tax implications of their exit strategy. If you don't plan ahead, you could end up paying a significant amount of money in taxes on the sale of your business. An experienced exit planner can help you structure your sale in a way that minimises your tax liability and maximises the value of your company.

Another reason to have an exit plan is that it gives you a roadmap for succession planning. If you're unable to continue running the business or want to retire, it's important to know who will take over and how they will be prepared to do so.

A well-crafted succession plan will ensure that your business can continue operating smoothly even if something happens to you.

These factors are all rolled into your overall exit plan and can provide great peace of mind to yourself, your family and your team. Knowing that there is a solid plan in place for what will happen when you're no longer at the helm can provide invaluable peace of mind during what is often a stressful time.

The Exit Planning Process:
What steps should business owners take to create an exit plan? 

Creating an exit plan requires some thought and consideration, but don’t feel overwhelmed, here are a few key steps to get started:

  1. Start with your personal goals. What's important to you? How do you want to live your life? What do you want to do on a daily basis after you exit? Start thinking with the end in mind. Are there other shareholders in the business? It’s critical to understand their goals and identify if you are all aligned.
  2. Assess the current value of your business. This will involve working with a professional appraiser to determine the fair market value of your company. Once you know the current value of your business, you can start making plans for how to increase that value over time.
  3. Create a timeline for your exit. This will help you determine when is the right time to sell or transfer ownership of your business. In addition, having a timeline in place will give you a goal to work towards as you implement strategies to increase the value of your company.
  4. Identify your successors. Once you have an idea of when you'd like to leave your business, it's time to start thinking about who will take over. If you have employees or family members who are interested in purchasing the business, start having conversations with them about their goals and intentions. Alternatively, you may decide you need to hire a CEO to take the reins, or the next step may be to look for potential buyers who would be a good fit for your company.
  5. Put together a solid team of advisors who can help you through the process of exiting your business. This team should include an experienced exit planner, a financial advisor, and a commercial lawyer. Working with this team of professionals will ensure that all aspects of your exit are well-planned and executed smoothly.

Your Personal Goals and Desired End Game

The first step in creating a business exit plan is to start with your personal goals and have a desired endgame in mind. What are your goals for the future?

  • Want more freedom? What does that look like?
  • Do you want more time to focus on a hobby or passion project?
  • Always wanted to buy that yacht or take 3 months off every year travelling?

Everyone has their own personal dreams and goals, start to articulate these for yourself.

“We weren’t born to do business. We were born to live life.

Your business should be the vehicle to deliver the life you want.”

Once you have identified your personal goals, you will have more clarity on what you want for your business. Perhaps, at some point, you’ll want to sell your business, or hand it down to the next generation of leaders.

Once you have a clear idea of what you want to do, you can put together a plan that will help you achieve those goals.

Your personal goals should always be the priority.

Knowing What Your Business is Worth

The next step in creating an exit plan is to get a professional valuation appraisal of your business. This will give you an objective estimate of the fair market value of your company.

A business valuation will consider a variety of factors, including your company's financial history, tangible and intangible assets, industry data, non-financial value drivers and the current market conditions.

Once you have an accurate assessment of your business's worth, you can start planning for how to increase company value over time.

No matter what stage of your journey, a business valuation can provide a holistic overview of the drivers and detractors impacting the worth of your company. Interestingly, business owners choose to value their company for many different reasons.

Creating a Timeline for Your Exit

If you have an understanding of the value of your business, you can start planning for the future. When would you like to exit or sell the business? This doesn’t have to set in stone but can be a good way to navigate forward.

Having a timeline in place gives you a goal to work towards as you implement strategies to increase the value of your company.

When creating your timeline, there are a few things to keep in mind:

  1. Your current age and health as the business owner: If you're relatively young and healthy, you may have more time to wait for the right buyer or market conditions. However, if you're getting closer to retirement age or have health concerns, it's important to plan your exit sooner rather than later.
  2. The stage of the business cycle: The timing of your exit will also be affected by where your business is in its life cycle. Businesses tend to be most valuable when they're growing rapidly or are established and profitable. If your company is in a declining industry or is struggling financially, it may be more difficult to find a buyer willing to pay top dollar.
  3. The needs of the business: Another factor that will affect the timing of your exit is the current needs of your business. If you need capital for expansion or other growth initiatives, it may make sense to sell sooner rather than later so that you can take advantage of that growth potential. On the other hand, if your company doesn't need any immediate funding and is doing well financially, you may have more flexibility in terms of when you sell.
  4. Identifying your successor: After everything you’ve put into your business, you want to ensure you are passing the baton to the right person—perhaps that is someone who will care for your clients the same way you do, or who values the staff who have supported you for years. In this phase you can explore if it’s best to choose an internal or an external successor. There are pros and cons to each option.

Identify the Successors for Your Business

When you are looking at the future leaders of your business there are two aspects to consider: Ownership succession and management succession.

Ownership succession

Who can you see owning your business in the future? Are you prepared to consider internal and external parties?

If you have employees, who are interested in purchasing the business, this can be a great way to ensure that your company remains in good hands. When selling to employees, it's important to put together a solid transition plan so that everyone is on the same page and knows what to expect.

Another option is to sell your business to an outside party. This could be another company in your industry or a private equity firm. When selling to an outside party, it's important to make sure that they understand your business and have the resources necessary to take it over.

Management succession

How do you ensure your business has the internal capabilities to achieve your vision and goals?

Who are the key stakeholders in the business? Are you (and the key stakeholders) clear on the current state of the business and the future plans? Good succession planning involves gap analysis, skills analysis, knowledge transfer and development plans to ensure you move the right people into the right positions to navigate the business forward.

With strong succession planning in place, you’ll have peace of mind that if something goes wrong, you have the plan and the people, to step in and keep the business on track.  

Handing over the baton is never easy – and this true whether you are transitioning your entire business or choosing future leaders to step up.

The best approach it is to have a solid process, get the right help, and understand that it is a journey that involves ongoing review and refinement.

Assembling Your Team

An effective exit plan typically includes five core members who play pivotal roles:

  • The Business Owners – All business shareholders should assess their personal and business exit readiness. This may involve discussion around health status; life insurance; personal finances including all debts and assets; and estate planning. This will provide a comprehensive overview everything that's on table before starting formulate strategy moving forward.
  • Trusted Business Advisor - One most important decisions to make during this process is finding qualified advisors that can provide honest feedback and draw on experience when it comes to growth strategies, financial management and exit strategies. It’s critical they can assist from a business and personal perspective.
  • Commercial Lawyer – a critical player who understands legalities that come into play when it comes to the growth and exit stages of your business. A commercial lawyer with M&A experience can assist both prior after exit, reviewing existing contracts and agreements while also helping draft new ones to protect rights liabilities everyone involved transaction.
  • Accountant - Depending on specific circumstances surrounding deal itself, an Accountant with tax and M&A expertise can navigate murky waters and avoid any unwanted consequences down line. A common mistake many businesses make is failing to account properly for taxes. This ends up costing them dearly.

The Benefits of an Exit Plan: How your exit plan can make a difference in your life and those around you

A business exit plan is like a compass navigating your path forward, it should be part of your overall growth plan. This makes sense when you acknowledge that business owners are on a cyclical journey—they get into business, they grow the business and they eventually get out. Sometimes, they start that journey again.

Here are some key benefits of exit planning:

  • A business exit plan can provide clarity and peace of mind for business owners
  • It can help business owners to identify and quantify their goals for their business
  • A well-executed business exit plan helps maximise the value of a business and will ensure a smooth transition for the business owner and employees
  • A business exit plan can help to minimise the risk of business failure and maximise the chances of a successful sale or succession

No Exit Plan? What Could Go Wrong?

Imagine suddenly being thrust into the CEO position of a company you've never worked in before, in an unfamiliar industry.

What's worse? This happens while you are still grieving the loss of your partner... just days after the funeral.

This is what happened to Sandy Hansen-Wolffe when her husband Randy was diagnosed with leukemia and subsequently succumbed to the disease.

Sandy found herself at the helm of their agricultural feed business.

Discovering that the business had significant debt and with little more than a note listing out the assets, she felt out of her depth in a male-dominated industry with no plan.

"....we just went through the funeral, and people asked me, what will you do with his company? It was a sales rep that told some of our customers that I would be taking over. I remember hearing that, thinking--oh, I guess I can do that.... However, I felt trapped. At the time, I didn't feel like I had a choice." 

How can you make sure this doesn't happen to your family?

We all know that life can sometimes take these unexpected turns. Though we don't know exactly what's ahead, there are ways we can prepare for the unexpected.  In business, that means developing a good exit plan.

Though Sandy was propelled into the business without warning, she picked up the pieces and learned the ropes—not without many mistakes along the way (as to be expected). She also made a critical decision to find a business peer group and a coach—"It's the best thing I ever did to move the needle quickest."

Through the support of other business peers and her sheer determination, Sandy evolved her business skills for the better: She was determined to build a saleable business and never put herself or someone else in that position. That was the motivation behind her own exit plan. She grew AgVenture Feed & Seed to $8 million in revenue before she decided it was time for her to sell. 

Hear Sandy’s story first-hand: From near bankruptcy to $8 million

Conclusion: What to do next for your exit planning journey

Every exit plan is unique.

Some people want to simply exit the day-to-day operations, others want to build to a certain valuation and then sell. There are many different options available for those that think about it early.

Forward thinking business owners understand that success comes with strategy. An exit plan is the blueprint to help you unlock the value you’ve tirelessly built, and achieve your specific personal, financial and business goals as an entrepreneur.

This article was designed to get you thinking, but to achieve success, the key steps forward are to:

  1. Get clear on what your goals are (along with the goals of key stakeholders)
  2. Understand the value drivers and inhibitors in your business today. Know it’s worth.
  3. Understand your Exit Readiness position and valuation improvement plan
  4. Know your exit options
  5. Start executing on an exit plan that will give you financial freedom and secure your legacy.

At Exit Advisory Group we help business owners maximise the value of their company and exit at the top of their game.

Here’s how we can help you:

  1. Discover what your business is worth: By understanding where you are today you can create an effective plan for business growth.
  2. Understand your exit options: There are many ways to exit a business. We'll help you choose the option that matches your business, lifestyle and personal goals.
  3. Increase the value of your company: Whether you want to exit in a specific time-frame or reach a desired valuation. We'll give you a game plan to maximise company value and achieve your goals.
  4. Sell your business: If your desired exit option is to sell, we are a licensed business broker and we can handle the entire process from creating the strategy and finding buyers all the way to settlement and transition. Find out how we do things differently to most other business brokers to get the best results.


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