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Expert Q&A for Crafting a Winning Business Exit Strategy

By June 4, 2024July 8th, 2024Early to Mid-Career, In Retirement

At Sensenig Capital, we spend a significant portion of our time helping clients discover and achieve their financial and life goals. From our experience working with business owners, thoughtful business exit strategy is a critical component of realizing those long-term objectives.

In addition to managing their wealth, we guide entrepreneurial clients through understanding their options and preparing for an eventual business transition or exit. This blog will cover some of the most frequently asked questions we receive.

What Should a Business Exit Strategy Look Like?

No two businesses are alike, thus there is no one-size-fits-all approach to exit planning. Every plan should be tailored to the business owner’s unique circumstances, lifecycle stage, and desired transition or exit strategy. However, all comprehensive exit plans should address what we at Sensenig Capital call the three legs of the exit planning stool: business, personal, and financial.

The business plan outlines the strategies and goals that will incrementally increase the company’s value over time, positioning it for the desired transition or exit. The financial plan ensures the business owner and their family can achieve their needs, wants, and wishes both before and after the transition. Most importantly, it will illuminate what you NEED to receive net of taxes from your exit to sustain your lifestyle. Finally, the personal plan is meant to PROACTIVELY prepare the owner and their family for life after the business by exploring what they’ll be doing after their exit. For example, if you’ve spent decades building a successful architecture business, you’ve dedicated an extraordinary amount of time to achieving that goal. Not only will your identity need to shift, but it may also be challenging to imagine how to fill all the free time you’ll have after your business exit!

When executed effectively, a robust business exit strategy shifts the focus from income generation to value creation, priming employees, customers, and stakeholders for the company’s next chapter. These plans should be reviewed quarterly and updated to reflect changing circumstances, goals, and market conditions.

What Are Some Examples of Business Exit Strategies?

Exit planning options generally fall into two categories: internal and external. Internal options include:

  • Transitioning a family business to the next generation
  • Creating ownership capabilities for your trusted management team
  • Selling to employees through an Employee Stock Ownership Plan (ESOP) 

External options could involve:

  • Selling to a third party, competitor, private equity firm, or venture capital fund. 
  • In some cases, a complete liquidation may be appropriate for asset-heavy businesses.

Remember, it’s also possible to pursue a combination of these options over a multi-year period. For example, an owner might initially sell a portion of the business to their management team and then later sell the remaining stake to an external buyer. 

The process can seem daunting initially, especially for small business owners who are already wearing multiple hats. However, you don’t need to tackle everything at once. We recommend starting by assessing your business’s current state through a professional valuation to understand its true market value. Then, evaluate the three pillars–personal, business, and financial–to identify gaps between your present situation and future goals.

Who Should Be On Your Business Exit Strategy Team?

Building a well-rounded core team is crucial for successful exit planning. This team should typically include the following:

  • Accountant: will have deep insights into your business’s financials and record-keeping practices. Messy bookkeeping can be a deal breaker.
  • Business Attorney: to handle any legal matters necessary for planning either an internal or external exit.
  • Industry Consultant: if appropriate for your business’s maturity and challenges.
  • Financial Advisor: to develop a comprehensive plan ensuring your financial security before and after the exit.

The key to successful exit planning is building a well-rounded team that supports and guides you. These professionals should collaborate effectively, understand your goals, and communicate openly with one another to avoid misalignment. With the right team in place, you can navigate the complexities of exit planning with confidence.

What’s the Ideal Approach to Business Exit Planning?

Exit planning should be viewed as an ongoing mindset rather than just a documented plan. The key approach to a successful business exit is starting early. By being proactive, you’ll provide yourself the flexibility to adapt your plan as industries evolve and circumstances change, putting you in control of your business’s future. If there’s one guarantee, it’s that things will change! Starting sooner will inherently create more options and better position you for a seamless transition.

Developing a comprehensive business exit strategy is not just about maximizing the value of your business, it’s about securing your future and that of your loved ones. Whether your ideal timeline is ten years away or you’re starting to explore options now, the insights shared here can help lay the groundwork for a rewarding and secure future.

Don’t hesitate to get in touch for a complimentary consultation to explore your options further! Contact us using this form, call 610-584-9700 or email us at [email protected]