The key elements of a successful exit strategy plan
Updated: Jun 6, 2019
An exit strategy plan is simply a document that details how a business owner will exit the business at the best possible price. We detail the key elements that should be in an exit strategy plan and what gives you the best chance of a successful exit.
The exit strategy plan is not just the list of options you have to exit a business - it includes all the other steps that happen before and after you create the plan. It is your template to:
Increase the business valuation.
Maximise the likelihood of achieving a sale or transfer of ownership.
Maintain control of the exit process.
Get the outcome you want on your terms.
What are the core elements of an exit strategy plan?
An exit strategy plan will have seven core elements:
Detailed statement of your objectives in terms of price, expected dates, minimum requirements and deal breaker terms.
An assessment of the value of a business.
Readiness for sale.
Opportunities to increase the business valuation.
Exit strategy options.
Qualified buyers list.
Clear actions required to achieve your objectives.
If the timeline for the exit strategy is more than 2-3 years away then some sections will be very broad and necessarily lack some detail. Like all good business plans an exit strategy plan should be reviewed and updated regularly, with new detail added as it becomes relevant and available.
In some cases the readiness for sale will also include an assessment of the readiness for a transaction. A business may be ready for sale in terms of having good financial performance, systems in place and effective reporting, but there may be documents not ready for due diligence, the legal structures may need to be changed and other deal factors may need to be checked.
It is important to understand that having an exit strategy plan is very different to actually doing a deal. The skills involved in conducting a successful negotiation and implementing the transaction is very different to getting to this point. However, without effective and detailed preparation that comes with an exit strategy plan, the transaction becomes even harder than normal.
When should I create an exit strategy plan?
There is only one answer to this - as early as possible.
For startups, an exit strategy plan is vital to being able to manage a very dynamic environment, when often plans change overnight. A recent startup client had two founding shareholders needing an exit for personal reasons and the team had to rethink the expansion strategy. Often the exit strategy plan for a startup may be very broad and lack some detail, but the key elements in an exit strategy plan will also assist in creating an effective startup plan.
In most cases an effective exit strategy will take 1-2 years to implement, and in some cases longer. Where significant changes in the business are required an exit strategy plan should be considered as much as 5 years out.
It is often advisable to have at least two years of financial statements prior to seeking any buyer that are performing at the level that justifies the price you expect. For this reason a 2-3 year window is often an optimal time to plan for an exit strategy.
What advice is required for an effective exit strategy plan?
An exit strategy spans several key elements that often require very specific advice from experienced and qualified advisers. These include
Accountant - advising on supporting documentation, due diligence issues and tax implications.
Financial Planner - advising on investment of sale proceeds.
Solicitor - advising on sale terms, negotiation options, contract issues and executing a deal.
Broker or M&A Adviser - advising on buyer identification, discussions, negotiations, deal structure.
Business valuer - advising on business valuation and preparation of the business.
In some cases other specific advice is required, and an effective exit strategy can be made easier and more successful when all the information is available to make timely and effective decisions.
What makes an exit strategy plan successful?
There are two key features that make any exit strategy successful:
Early and detailed preparation.
When a business owner is forced into an exit strategy, rarely can they get the deal they want. It is always harder to negotiate the date of exit, the price and key terms of an exit when the buyer knows you really need to exit on a specific timeline. Buyers rarely need to make an acquisition by a set date. So if you're not ready to sell your business and you need to get out within a certain time period, you will not get the terms and the price you want.
Having options in any negotiation is power. If you can confidently decline an offer and walk out of negotiations, knowing you have other options then you control the process - not the buyer.
The key actions that maximise your options include starting the exit strategy planning process early and to seek sufficient advice from different advisers. Often an advisory team will include multiple advisers, which ensures you have the best options available.
Do I need an exit strategy valuation?
A business valuation will typically include an assessment of the business to determine the strengths and weaknesses that impact the attractiveness or risk of the business. However an exit strategy valuation is a business valuation undertaken specifically to identify all the opportunities that can increase the value of the business prior to the exit strategy being implemented.
It will highlight the changes that will result in increased earnings and an increased EBITDA multiple, in order to maximise the value of the business well before the exit strategy is implemented. An exit strategy valuation will identify the key value drivers and the opportunities to increase the value of the business based on adjusting the key value drivers.
We have seen businesses adopt key strategies in their business plans that result in a significant increase in business valuation. These strategies include:
Use of technology to automate processes and increase capacity.
Document procedures to provide confidence in transferring to owners.
Pursuing key market strategies to attract the right types of buyers.
One of our clients specifically documented marketing procedures to key clients and implement a growth strategy and resulted in a $3m sale instead of a sale for less than $1m, and it was implemented according to their deadlines.
Without a detailed business valuation as part of the exit strategy plan, then improvement strategies often lack sufficient detail in order to see an increase in the sale price. An exit strategy valuation becomes the basis for valuation improvement action plans and can increase the price you can achieve by more than 100% - 200%.
Have you thought about your exit strategy options?
Is your business prepared for sale?
Will you get the price you want for your business?
If you want answers to these questions then send us an email or call and we can discuss your options.