Do you have an exit strategy?- How are you going to leave your business? Sale, retirement, leaving to the next generation? How you’ve structured your business may make it harder to transition out and cause you to pay more tax when you leave.
You Can’t Level Up Without an Exit Strategy in Place
I’ve been doing a lot of writing lately about the concept of “levelling up,” and why it’s so important to have all your ducks in a row, business wise, in order to get to that next level.
Why is sharing so important to me? Because knowledge is power, and if we don’t help each other, and share the wealth of information rich folks tend to have access to (and that you tend NOT to!), no one will. That is a FACT.
Here are some more facts:
- Female entrepreneurs contribute 148 billion dollars a year to Canada’s economy.
- As of 2017, 20 percent of the small to medium-sized businesses in Canada were owned by women.
- And globally, more than 163 million women have started a business since 2014.
All looks good, right? Rah rah! I am woman, hear me roar, and all that jazz, yes?
Here’s the thing, in Canada, only 2 percent of women owned businesses reach $1 million and up in annual revenue.
And as I’ve said before, there are myriad reasons for this crap news (the biggest one being that lenders and the overall financial landscape remains – and yes, I’m generalizing as there are always outliers – stuck in a time-warp).
So far in this series, we’ve talked about gaining entry to that elusive 7-Figures Club, corporate structure, things you can do to lure cash-rich investors, protecting your valuable intellectual property, and the pros and cons of exploring the franchising game.
Today, I want to talk about the importance of crafting an exit plan – trust me, it’s not too soon to think about exit plans. In fact, knowing TODAY exactly how you want to sundown your business, will ensure every step you take between now and then will lead you to eventually reaping the benefits of your blood, sweat, and tears.
Besides, it’s important to acknowledge that exits can be involuntary. 2020 was a hell of a year and 2021 is looking to be another interesting ride. Women-led businesses were disproportionately affected by the Covid-19 pandemic, many because of school closures and childcare issues. And while “global pandemic” might not have been on your 2020 vision-board, it has been a powerful wake up call to business owners: there are myriad reasons you might one day face an involuntary exit – family responsibilities, accidents, sudden illness, yes, even death. Even if you’re not planning to exit anytime soon, getting your business in the right shape will help you extract the most value from it, should the unexpected occur.
The Different Ways to “Exit” a Company
Ask yourself: what do you want for yourself and your business? Do you hope to pass your company, and your intellectual property, down the generations, creating a legacy to benefit your children, and their children? Do you hope to have enough financial freedom that you can retire to that sunny beach somewhere, a drink in hand? Do you just *finally* want some flexibility, freedom of any kind (LOL), after all those years of hard work?? Perhaps to invest in other up and coming startups, mentor younger entrepreneurs, travel?
There are a number of ways you can extricate yourself from your company:
- Acquisition – Perhaps you’d be ok with a long-term buyout with valued employees, and or management teams? Or you sell it on the open market (make sure you have the right evaluation done, by an independent.)
- Merger – Your intellectual property, and/or bricks and mortar business is purchased by, and merged with, another company, perhaps a competitor.
- Liquidation – Company shuts down, assets are sold, creditors and investors are paid out. But you lose your business concept, trademarks, reputation, and your customers.
- Hand it down, generationally – Business and brand continue on indefinitely, you get the pleasure of watching what you’ve built continue on, from the sidelines. Before you take this step, and to ensure family relationships aren’t damaged, keep emotion out of the deal, and be upfront and honest about things like liabilities, and the profitability of your business, before signing on the dotted line. Hint: Get a lawyer!!
Planning Your Exit Strategy
Having a clear and concise exit strategy at the end of your business plan helps potential investors feel secure that, should you eventually leave, their money will be safe.
Also, your exit plan isn’t a “set it and forget it” document. In fact, you should audit it yearly, and tweak it as your business grows, as markets change or demand shifts, unexpected events occur that impact your company (hello?? Covid-19!). You yourself might change! Perhaps a partnership has dissolved (or developed!), or your personal situation has evolved.
Here are a few things to consider:
- How will you protect your business investments and limit losses when you sundown?
- How much money do you expect to bank once you exit?
- Do you want your company to continue on after you’ve moved on? Maybe you’d prefer it not to!
- And, when you decide it’s time to drop the shutters, how long will that take? How long are you comfortable with?
- And what kind of transition period is involved?
The goal of your exit strategy is simply to have a guidebook, so to speak, that helps you reach “the end.” It sounds weird to think about it when you’re just getting started or are only a year or two into making your entrepreneurial dreams come true!
Just remember – everything in life has a natural beginning, and a natural (hopefully!) end. You’re doing yourself, and your business, a service by actually planning out that endgame, and working toward the future of your dreams.
If you want to discuss more about what your exit strategy looks like, reach out and book a legal audit with me.