Want to Start 2025 on the Right Foot? Spend Q4 Updating Your Business Exit Strategy
Endings are hard. The last piece of gum in a pack, the last season of your favorite show, the last day of a vacation—all of them leave us with a certain longing, a nostalgia for the days when we weren’t counting down to “the last.”
But when it comes to your business, the ending is one you can shape if you’re willing to start preparing early. Regardless of how much longer you’re planning to helm your current entrepreneurial pursuit– just getting started or already thinking about retirement– you need to have a business exit strategy ready every step of the way.
Sure, it might seem strange to focus on an “end” in Q4—when everyone else is setting fresh goals for the new year— but the reality is that planning your business’s future now means you can walk into 2025 with a clear, actionable set of goals that strengthen your business today and set you up for a successful exit tomorrow.
As an end-of-the-year encouragement to start planning your transition today, we’ll spend the rest of 2024 guiding you through the core components of exit planning– Financial health, leadership development, contingency planning, value maximization, and more.
And, by the end of December, you’ll be ready to download your free “Business Exit Strategy Toolbox,” a practical, step-by-step guide to help you map out a rewarding transition out of your company.
Let’s start with a basic overview to get your gears turning!
Step 1: Define Your Vision
Before any meaningful exit strategy can take shape, you need to define what your business’s future would look like if you were able to transition entirely on your own terms.
Are you building a legacy to pass on?
Selling to fund a laid-back retirement?
Or perhaps you’re considering taking an advisory role, letting someone you trust take the reins while you still have a hand preserving your years of hard work.
Taking steps to define this vision keeps you grounded through day-to-day challenges and guides decision-making as you become more intentional about making choices that support the bigger picture.
Step 2: Consider the Possible Business Exit Strategy Paths
It’s also important to know your options for how you would like to exit your business. This step ties in closely with defining your vision, as it will also help you make more informed decisions to get you closer to the ideal outcome.
First, there’s family succession, letting you keep the business in the family. While this will appeal to anyone passionate about preserving a legacy, you and your family must manage their expectations. Sometimes, your first choice of successor won’t want to take over, feelings will be hurt, or there’s a lack of leadership preparedness. To make this a viable option, create a succession plan A, B, C, D, ad nauseum, and be transparent with your family. The more time people prepare, the more likely the hand-off will go off without a hitch.
Alternatively, you might consider selling to a third party. Selling can provide a clean break with substantial financial returns, but it means preparing your business to appeal to potential buyers. A lot goes into making your business attractive on the open market, so you’ll need to get started boosting your business value as far ahead of your transition as possible.
Employee buyouts can help ensure continuity since those who know and value the business will carry it forward. However, it requires a strong, cohesive team and often some financial structuring, like an employee stock ownership plan (ESOP), to make it feasible.
Finally, there’s liquidation, or selling off assets and closing operations. It may sound like the least glamorous option, but it can be practical in certain circumstances.
Step 3: Set a Timeline
Before you start etching a 10-year plan into stone, I’d encourage you to keep your timeline very flexible. Yes, in a perfect world, you’d exit only when the timing feels right, but we know that life rarely goes according to plan. Anything from an unexpected opportunity to a sudden shift in the market could accelerate or delay your exit.
Think of your timeline as a range within which you can set practical milestones without feeling boxed in so you always have some space to adapt to changes while continually moving forward.
Step 4: Conduct a Financial Health Check
If there’s one area you don’t want to leave to chance in the years leading up to your exit, it’s your finances. A strong record of accounting and clear business value makes it infinitely more attractive to potential investors, buyers, or successors when the time comes.
We’ll cover different categories of financial metrics and how to track them in more detail later this month, but you can get started thinking about some of the basics:
- Cash flow– Operation and free
- Profit margins– Gross, profit, and net
- Debt-to-equity ratio
- Operating expenses
Step 5: Increase Business Value
Next, you’ll need to step into your future buyer’s or successor’s shoes and consider what aspects of your business might be missing but could make it completely irresistible. As you think about those possibilities, remember that the goal isn’t doing a complete overhaul today but rather taking stock of the areas where a little extra attention could make all the difference.
You’re going to approach this from two different perspectives:
- Start by looking at any gaps that could impact your business’s appeal. Deficits in certain areas can be major red flags for potential buyers, so you want to eliminate as many of them as possible so that your operation looks as attractive as possible.
Here’s an example: Does your business lack a steady recurring cash flow stream? Buyers love businesses with a predictable income source, like subscription models or ongoing client retainers that bring in revenue month after month. Get it going now while there’s still time to build it up.
- You should also recognize and highlight the strengths you’ve already cultivated, particularly if they’re intangibles that are hard to replicate, such as a stellar public reputation or a loyal customer base. You can maximize the value of these assets by taking measures to document and protect them. Think testimonials, case studies, local awards, etc. These assets are something that no buyer can walk in and immediately earn for themselves, so it’s serious leverage in negotiations.
Step 6: Expect the Unexpected
Anything from an industry innovation to a change in personal circumstances can affect your exit timeline, so no matter how dedicated you are to mapping out your long-term business exit strategy, it’s just as necessary to think about all of the “what ifs.”
Be prepared with an equally detailed contingency plan to act as your safety net to keep the ship steady if things don’t go according to plan. That means keeping your process documentation current, getting potential “backup” leaders coached, and squirreling away as much money as possible for emergencies. While you’ll hopefully never need to put these plans into action, you’ll have the peace of mind of knowing that you’re ready in even the worst-case scenario.
Catalyst Group ECR: Your One-Stop Shop for Creating a Business Exit Strategy
For planning your business exit strategy, there’s no better partner than Lori Moen. As both a Certified Exit Planner and Certified Business Coach, Lori has the expertise and experience to guide you every step of the way. In addition to creating the plan itself, her coaching background means that she can work directly with your leadership successors, preparing them to confidently step into their roles.
Don’t let another year pass with your business’s future left in limbo. Contact Catalyst Group ECR today!
