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5 Essential Elements of an Effective Exit Plan

Exit plan creation should be a key part of your business plan, no matter whether you’re serving your first customer / client or swiftly approaching retirement. Knowing what you plan to do when you hand the company reins over to someone else allows you to align present business decisions and operational objectives with your long term personal and financial goals.

To ensure a successful exit and ultimately safeguard the value of your business, your exit plan should contain these five essential elements.

  1.  Well-Defined Goals

When your business is just starting out, your goals will be tentative and likely to change over time. That’s to be expected. But they still need to be in place, so that all you need to do is revise them as your company grows and / or its circumstances (and yours) change. Examples of such goals include:

  • Target exit date
  • Whether you want the transition to be to a key employee, family member, or third-party buyer
  • A definition of the value you want to make a financially successful exit

Knowing your goals will help you devise the best strategy.

  1.  A Decision on Transition Type

There are different types of business transition, each one intended to serve the goals and needs of different business owners and company types.

  • Merger & acquisition (typically involves merging with a similar company or being ‘bought out’ by a larger one)
  • Selling to a family member or key employee
  • Liquidating the business and closing it down

The one you select will dictate the future of the company, and your present operating model should follow suit.

  1.  Optimized Company Value

If you want to obtain the best terms and price for your business, your exit strategy needs to include steps that optimize its value. This includes:

  • A track record of proven results and suggestion of future profitability
  • Sustainable business performance via carefully considered risks
  • Metrics that measure progress and enable the owners to take corrective action if necessary
  • An ability to enter adjacent markets, increasing its value to higher-level buyers

This element can be achieved by working with a business broker who understands your industry and is familiar with its current valuation metrics.

  1.  Flexible Approach

Many business owners balk at creating an exit strategy because they believe that once they develop one, their future business moves are cast in stone and unchangeable. The reality is that the best and most effective exit strategies change over time as the business and / or the market grows and evolves. Every plan should be monitored at regular intervals and updated as needed.

  1.  Proper Timing

Like most things in life, those who plan do better than those who do not. Without sufficient time to prepare your exit plan, the company may not be in an ideal position to attract buyers who will offer the highest price and best deal terms. You may also miss out on the chance to benefit from market conditions that could raise both the value of your business and the number of qualified buyers.

Remember: exiting a business is a process, not a one-time thing. As a company owner, you need to put a lot of consideration and analysis into your exit plan so that you make the right decision when the time comes. Otherwise you leave both your future and your legacy to chance.

At Tennessee Valley Group, Inc. we have years of professional and practical experience in helping business owners create plans to successfully exit from their business. To learn more about how we can make your future goals a reality, please fill out our contact form or call 615.390.9966 for a confidential consultation

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Tennessee Valley Group

Jim Cumbee established Tennessee Valley Group to help business owners fulfill their dreams for life after business ownership. It’s a mission that his 30+ year career history had prepared him well for—in addition to being an attorney, transition mediator and business broker, Jim has been a buyer, seller, and entrepreneur. His broad range of experience gives him unique insight into how business buyers and sellers can achieve their goals.

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