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What Is an exit strategy, and why do I need one?

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By Jo Thornley, Head of Brand and Partnerships at Dynamis

No matter how attached you are to your business, the day will surely come when you will want to sell your investment. 

An exit strategy is the planning for the process by which you cease to trade or hand your business to another entity. Whether you choose to liquidate your assets or make a sale, it is never too soon to start thinking about your own eventual exit strategy

Why do people sell their businesses?

There are many reasons why people decide to sell their businesses and most of these are personal. 

Common reasons include retirement, illness, divorce, the need to seek a new challenge, or the need to raise money. A canny person might specifically plan to sell their business at a time when it is thriving and, therefore, worth more to a potential buyer. 

Deciding when to sell your business - on which you've spent time and money - might be one of the hardest decisions you'll ever make. Most people have a strong emotional attachment to their business and it can be very hard to 'let go'. 

An exit strategy can make it easier to make clear-headed business decisions at each stage of the journey. 

When should you start thinking about an exit strategy?

Business experts advise having an exit strategy in mind from the very first days of your fledgling business. 

Selling your business is the most portentous and financially significant of all your business decisions, whether it's acquired by a Fortune 500 company, transferred to your children or sold to strangers. 

Understanding the stages of a business growth curve is important. These stages of early growth, a period of plateauing and eventual decline - unless there’s reinvestment or redirection - repeat themselves in a cycle. 

Planning to exit during a period of growth - the time when the business is most likely to achieve the highest asking price - is one example of an exit strategy. 

Even though it may feel like a long time off, thinking about and planning your ideal selling scenario could pay dividends. 

Whether you want to remain with your business in the long-run, or do not have your future plans set in stone, an exit strategy is useful. It can add value to growth plans and expansion, to profit forecasts; either being able to generate interest from any potential buyer in the foreseeable - and unforeseeable - future.

When selling your business can be predicted

If you know that you will want to sell for retirement, you could plan a friendly sale to an interested family member or friend, or to someone who you believe will steer the business in the direction you envisage. 

It's a good idea to always treat your business as if you are planning to exit - this includes keeping your books tidy and always having a growth plan in place. 

If you would like to hand your business over to children for example, you may have the unique benefit of offering a longer, more in-depth handover period whilst you continue to run business. Whether this includes, training them on the tills or asking for their input on the future of the business - this would still need to be planned in advance.

A plan for unpredictable situations

As already discussed, having a growth plan in place will help make your business an attractive prospect. It’s also one less thing you need to produce out of nowhere if you suddenly need to exit due to unforeseen circumstances. 

If you always ensure your financial affairs, accounts and contracts are in good order, good planning will make it far easier for you to eventually realise the full value of your company, even when your exit from the business is unanticipated.

When things aren’t going to plan, it may be necessary to sell at a less than ideal time; when your company is in a period of decline. 

If you receive an unsolicited offer, or difficult circumstances arise, a sensible exit strategy might be to sell as soon as you receive that sensible or realistic offer. 

Again, having an accurate growth plan in place and your affairs in order will make this process less stressful and add value to your business, even if you require a fast-sell. 

An exit strategy is not only crucial to successfully help you to clarify your personal objectives as a business owner, it can offer insight into the future and potential of your business, as well as creating a level of security for what may lie ahead. 

By Jo Thornley, Head of Brand and Partnerships at Dynamis. 
Joining in 2005 to co-ordinate PR and communications and produce editorial across all business brands. She earned her spurs managing the communications strategy and now creates and develops partnerships between, and and likeminded companies.