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Let’s talk Succession – the HBO series. Warning there may be a couple of spoilers ahead if you watch the show, but what I really want to talk about is your exit plan with your own business.
But first, the show. I’m a bit obsessed, and last week’s episode was extremely sad, made me think about my own father’s passing last year. Of course, his looked nothing like Logan Roy dying, and we didn’t have to worry about what would happen to our family’s huge conglomerate and how it might impact the stock market, since our family doesn’t own such a large company. Dad worked for Ford Motor Company and retired there … but we didn’t OWN it, lol. Plus, dad was nothing like Logan Roy, except maybe if he had good qualities my dad likely shared those, but it seems Logan just had a bunch of the bad ones. Dad, on the other hand, was good.
(Is it strange that I really like Kieran Culkin’s portraying of Roman Roy? Shouldn’t I associate more with Shiv somehow?)
One of the important things that an entrepreneur needs to consider is their exit strategy. All entrepreneurs need to consider this early – much earlier than you might expect. Some businesses can become a family business and be handed down through generations. In other cases, the entrepreneur may only be planning to continue the company while they are actively running it, closing it when they eventually retire. Others may plan to eventually sell.
Life is full of surprises, and the world of business is no exception. While you might have a long-term vision for your business, unexpected events can arise, prompting you to consider an exit sooner than anticipated. This is why having a well-thought-out exit strategy plan is crucial for entrepreneurs. It not only helps you prepare for the future but also enables you to act swiftly and confidently when opportunities or challenges arise.
An exit strategy plan serves as a roadmap for navigating the complex process of exiting your business. It helps you make informed decisions and ensures that you’re ready to act when the time comes. There are several reasons why having an exit plan is essential:
Maximizing the value of your business: A well-prepared exit strategy can help you optimize the value of your business, ensuring that you receive the best possible return on your investment.
Ensuring a smooth transition: A comprehensive exit plan helps ensure that your business is in good hands when you leave, minimizing disruptions to operations and maintaining stability for employees and customers.
Protecting your financial future: By planning your exit in advance, you can better assess your financial needs and ensure that you have the necessary resources to fund your retirement or next venture.
The Unexpected Offer: Imagine a small business owner who has built a successful e-commerce platform. Out of the blue, they receive an acquisition offer from a major competitor. The offer is lucrative, but the owner has never considered selling their business before. Because they have a well-defined exit strategy in place, they can quickly evaluate the offer, negotiate the terms, and make an informed decision about whether to accept it.
The Health Crisis: A solo entrepreneur has been running a thriving consultancy for years when they are suddenly diagnosed with a severe illness. This unexpected health crisis forces them to reevaluate their priorities and consider stepping away from the business sooner than planned. With an exit strategy already in place, the entrepreneur is able to transition the business to a trusted partner, ensuring that their clients continue to receive high-quality services while they focus on their health.
In both of these scenarios, having an exit strategy plan in place allowed the business owners to respond effectively to unexpected events. By planning ahead, they were better prepared to make crucial decisions and protect their personal and professional interests. As an entrepreneur, it’s vital to recognize the importance of an exit plan and to begin developing one early in your business journey.
Before diving into the different options available for exit strategies, it’s essential to ask yourself a few critical questions:
Your answers to these questions will help guide you in determining which exit strategy is best suited for you and your business.
Walmart is a classic example of a successful family succession. Founded by Sam Walton in 1962, the company has been passed down through generations, with his descendants still holding key leadership positions.
Consider a local family-owned bakery that has been in operation for several years. The owner plans to retire and has trained their child to take over the business, ensuring that the bakery remains in the family and maintains its reputation in the community.
In 2014, WhatsApp was acquired by Facebook for $19 billion. This acquisition allowed WhatsApp’s founders to realize a significant financial return while benefiting from Facebook’s resources to grow the platform further.
A small software development company has created a niche product that has gained the attention of a larger tech firm. The larger firm acquires the small company, providing the solo entrepreneur with a substantial financial gain and potentially a role within the acquiring company to further develop the product.
In 2010, Burger King was acquired by investment group 3G Capital for $4 billion. This acquisition allowed the fast-food chain to benefit from the financial expertise of the investment group while still operating independently.
A small marketing agency has grown steadily over the years and caught the attention of an investment group looking to expand its portfolio. The agency’s owner sells the business to the group, receiving a significant financial return and the opportunity to remain involved in an advisory capacity.
In 2016, software company Infragistics executed a successful management buyout. Founder Dean Guida retained a controlling interest in the company while also providing an opportunity for other executives to invest in the business.
In a small consulting firm with a few key employees, the founder decides to retire. The existing management team pools resources to buy the company, allowing the founder to exit with a financial gain while ensuring the business stays in the hands of those familiar with its operations.
In 2012, social media giant Facebook went public with a massive IPO, raising $16 billion in the process. This allowed the company to access significant capital to fund future growth and innovation.
A solo entrepreneur running a successful online store decides to step back from the business to pursue other interests. They transition the business to a passive income model by automating processes, outsourcing tasks, and focusing on generating recurring revenue, allowing them to maintain ownership and a steady income stream without active involvement.
Sometimes, the best exit strategy for a solo entrepreneur or small business owner isn’t about succession at all, but to close the business altogether. This decision can be driven by various factors, and it’s important to understand that it’s a valid choice when circumstances warrant it.
Here are some reasons why an entrepreneur may choose to close their business:
Retirement: After years of hard work and dedication, the entrepreneur may decide it’s time to retire and enjoy the fruits of their labor without passing the business on or selling it.
Economic Climate: Unfavorable economic conditions, such as a recession or a downturn in the industry, can make it difficult for a business to survive, prompting the entrepreneur to close the business.
Product or Service Obsolescence: Technological advancements or shifting consumer preferences can render a product or service obsolete, making it challenging to maintain a viable business.
Personal Circumstances: Life events such as health issues, family commitments, or a desire to pursue other interests can lead an entrepreneur to decide that closing the business is the best course of action.
New Opportunities: The entrepreneur may identify a more promising business venture or choose to return to the corporate world, leading them to close their existing business.
When closing a business, it’s essential to do so responsibly and with proper planning. This may involve fulfilling outstanding financial obligations, ensuring a smooth transition for employees and customers, and properly dissolving the business entity according to local laws and regulations.
Ultimately, it’s crucial to recognize that closing a business can be a valid and reasonable exit strategy. It’s essential for entrepreneurs to consider their personal and professional goals, as well as the viability of their business, when deciding on the best exit strategy. No matter the reason, it’s important to approach the decision with thoughtfulness and care, ensuring the best possible outcome for all involved.
From the outset, have a clear understanding of your personal and professional goals for the business. This will guide your decisions and help you select the best exit strategy.
Regardless of your chosen exit strategy, it’s essential to have a well-thought-out succession plan in place. This includes identifying potential successors or buyers and grooming them for future leadership roles.
A competent and experienced management team is attractive to potential buyers and can help ensure a smooth transition during an exit.
Keeping detailed financial records is essential for any business but is especially critical when preparing for an exit. Potential buyers or investors will want to see a clear and accurate financial picture of the company.
A positive and strong company culture can make your business more appealing to potential buyers and help retain key employees during a transition.
Establishing relationships with potential buyers, investors, or strategic partners can help you better understand the market and ultimately lead to a more successful exit.
Planning your exit strategy early in your entrepreneurial journey can help ensure a smoother transition and maximize the return on your investment. By asking yourself key questions, exploring different options, and taking proactive steps, you’ll be better prepared for your eventual exit and the next chapter of your life.
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