What do I need to create a business exit plan?

Exiting your business is inevitable. Whether you exit motivated by retirement or you're simply ready to get on with your next project, there will always come a time when you exit your business - and having an exit plan is crucial.

As explained in our guide, 'How to Plan Your Exit Strategy', it can take 3-5 years to plan an effective exit strategy, so you should always be planning earlier rather than later. But what should you include in your exit plan?

In this article, we'll explore the six crucial elements of a successful exit strategy.

An outline of your target buyer

Understanding your target buyer is key to knowing how and when your business exit will occur. For example, if you are selling to a family, you will likely stay involved in the business for longer, and you may not get as high a price as selling externally. If selling to the highest bidder, you’re more likely to exit sooner and will require a more in-depth handover – however, you’ll receive the largest sum. Decide on your priorities and consider the priorities of the buyer before you determine who your target buyer should be.

The date you’d like to exit

Knowing when you’d like to exit your business is obviously a crucial bit of information – exit strategies can be devised years in advance, so it’s important to have a rough outline to prepare for the target buyer at the time. As mentioned above, if you’re selling to a family (particularly children), you might be bound until children are of a certain age/experience to inherit the business, and further still, you might be required to stay involved for a certain period. Determining a year you’d like to be completely free of the business tends to be useful.

Your accounting records

When purchasing a business, your future buyer will likely want to see a few years’ worth of clear, reliable financial records and a financial analysis. Be sure to have all the paperwork ready. In doing so, you’ll also show your buyers that you are organised and that they are not walking into a messy business.

Your business processes

This somewhat depends on your buyer. However, it is likely in some way or another, you’ll need to hand over your business processes. If you’re handing over to family or selling to employees, the handover might occur over a few years, therefore not needing a structured written business process – plus, you’d be selling to people who already have a good understanding of the business operations. However, if you’re selling externally/to the highest bidder, you’ll need to ensure they are crystal clear on business procedures.

Business valuation

Your business exit plan creation will need to include an up-to-date business valuation. Of course, you won’t know what you’re going to receive for your business until the sale date itself, however, having an understanding of your business value will help you set realistic expectations and choose the right buyer when that moment comes. Also importantly, keeping on top of your business value will enable you to stay on track with business goals and objectives, always keeping value in mind.

Expert Guidance

Finally, getting expert guidance on your exit strategy is beneficial long-term, enabling you to focus more on providing business value than worrying about the admin and time spent finding the right buyer. Having the help of an expert will ensure your business is ready for sale for the optimal price, with all your required financial and operational paperwork ready to go. At The Finance People, we help SMEs access fractional CFOs and other finance experts, all of whom have years of experience in exit strategies. Get in touch today to start building your exit strategy with the help of The Finance People.