Blog:

Plan for the end at the start: Exit planning and your business

12 April 2018

Mike Torrie , Advisory Partner, Gisborne Managing Partner |

In business, you've always got to start with the end in mind. That's why exit planning is such an essential part of creating a solid business strategy. However, it can fall by the wayside when there are so many other, more immediate concerns to deal with. This can lead to many problems down the line.

Why is creating an exit strategy so important, and how should you go about doing it?

The importance of exit planning

A clear, fair exit plan will eliminate any potential for conflict among key stakeholders and owners. This is essential in any business, but particularly when it is family-run - ultimately, you want everyone to still be able to come to Christmas dinner without it descending into arguments.

The earlier you plan the better, as everyone involved will know exactly where they stand and what to expect when the time finally does come for you to move on.

Ultimately, business isn't just about money. A well-thought out exit strategy will also allow owners to ensure their legacy can survive, in terms of business success but also their values. If a business is heavily involved in the community, for example, you want this to continue even after you've moved on. Likewise, you want your employees and other people who rely on your company to remain looked after - something a good exit plan will enable.

Creating an exit strategy also ensures the future direction of the business and means owners can prepare for their retirement or what they want to do after running the business much more easily.

What makes a good exit plan?

Communication and clarity are the two key elements of a successful exit plan. You must communicate with all parties involved frequently, and help them to understand why you've chosen a particular course of action. If you have clear processes as to how you've made your decision, people will be able to accept it much more readily.

The most common problem comes from the fact that, normally, there isn't enough to please everyone. Therefore, it's important to find out exactly what each individual is expecting, and manage those expectations to avoid disappointment further down the track.

Different exit plans available

There are many different strategies available, and which one you choose will depend on the circumstances of your business:

  • Succession - often family succession, this works if you believe there is someone interested in (and capable of) taking the helm of your business after you leave.
  • Sale - to a third party, with whom you are not normally affiliated. This works best if you don't want continued involvement in the business.
  • Mergers and Acquisitions - bringing two businesses together. This works well if you want your business to grow.
  • Receivership or liquidation - though you can't necessarily plan for this, it is important to continually assess risk to ensure this doesn't happen.

Who needs to be involved in exit planning

When exit planning, you should involve:

  • Business owners
  • Key stakeholders
  • Anyone who might expect to be involved in the business after you leave.
  • People important to you personally.

However, the most important person to include is an independent adviser. They can help you decide which exit plan is most appropriate, and ensure key stakeholders and the people your business serves remain happy.

BDODrive offers businesses a variety of tools - including exit planning help - to ensure a business remains successful, even after you're gone. Contact us today to find out more.