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Why an Exit Strategy is so Important

 In General

Why an Exit Strategy is so Important

 

What if you don’t?

Pressure Panic

Orderly realisation

When a business fails to plan an exit strategy, it places the business owner at increased risk in a number of ways. In recent times it has become more common for financiers to look for (and expect) an exit strategy in a business plan, because there is growing awareness of the importance of contingency planning.

Contingency planning is an important part of the exit strategy, because things don’t always go the way they are expected to. Some of the less attractive scenarios that may be in effect when a business reaches its exit point include:

  • Voluntary liquidation
  • Involuntary liquidation
  • Forced closure
  • Hostile takeover
  • Dissolution of partnership
  • Discontinuation for health reasons
  • Loss of irreplaceable personnel
  • Force Majeure events

Voluntary liquidation would be the most desirable of these scenarios, where the business and its assets are sold or otherwise transferred. Normally this provides wealth to allow retirement income or for investment in a new business opportunity.

Involuntary liquidation, on the other hand, is undesirable. This is where a business has no choice but to liquidate its assets in order to pay debts, usually leaving the owner with very little and sometimes nothing.

Forced closure is when the government directs a business to cease operations for reasons of health, safety, morality, or violations of law. This is almost as bad as involuntary liquidation, except that funds from liquidated assets go to you instead of to your creditors.

Hostile takeovers rarely affect small businesses, but dissolutions are very common. These are situations where partners or shareholders in a business have a disagreement that can’t be reconciled.

Health problems are always a risk too, and can force you to have to sell the business or just close it down. If you haven’t prepared an corporate exit strategy, this will hurt a lot more.

Some businesses are highly dependent on specific personnel to sustain their operations. If for any reason those individuals are no longer available to the business, it may be forced to close, and even sale of the business may not be possible.

Force Majeure covers all the most extreme events such as war, terrorism, and natural disasters. These are things you can’t do anything about but which will have a major negative impact on the business. Even worse, these are things that normally can’t be insured against.

As you can see, there are many different possible scenarios a business could face at the end of your connection with it, and a well-defined business exit strategy should take into account all of the possible scenarios that fit the nature of the business.

 

Help with exit strategy planning

Developing your exit strategy is not a task you have to tackle alone. You can get help from an exit strategy advisor. Contact a Benchmark Advisor to assist you with your exit strategy today.

 

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