“By failing to prepare, you are preparing to fail”- Benjamin Franklin
A good plan today can save you from a failed exit tomorrow. Even if you are just starting a business, you should plan your exit before actually beginning the business venture. If you do you will be ahead of the other half of all business owners who do not. To help you with this process, an exit planning advisor in the GTA can help you develop a plan to maximize value and minimize taxes when you exit and work with you and your GTA business.
What is a business exit strategy?
A business exit strategy is a plan that allows an entrepreneur to be prepared for the possibility of an ultimate sale or transfer of ownership and control at any time due to potential unforeseen circumstances or even planned moves like a sale to external or internal buyer and subsequent retirement. A successful exit for you may involve maximizing the price you sell at and minimizing the taxes you pay when you sell.
According to the UBS Investor Watch Report, “Who’s the boss?” most business owners neglect a potential business sale and in fact, 48% of them do not have an exit strategy to deal with sale procedures. When it comes to the Canadian workforce, 4 out of 10 entrepreneurs in Canada are more likely to leave their business within the next 5 years as per a 2017 BDC study on the wave of business transitions – signaling the growing need for an exit strategy.
Why is an exit strategy important?
Quite simply, an exit strategy is required to ensure that you are able to actually accomplish your goals – whether that is to maximize value, minimize taxes or leave a lasting legacy.
Other benefits of having an exit strategy in place are:
- Enables a smooth transition within your organization and other stakeholders
- Enhances the value and worth of your business
- Reduces financial risks associated with the business as well as secures a potential retirement income
- Ensures that succession planning without the risk of any third party involvement
- Promotes stability within the business
To protect your business legacy, here are some of the ways you can maximize your ROI when making an exit:
Determine your goals: both long and short term
Every exit plan should be mapped to an objective that you think is achievable and measurable in advance so as to be prepared to tackle a situation that comes in its path of completion and make you ready for the exit. Goal creation should account for the income that will support a lifestyle beyond and without the business in the future including your existing insurance policies and other financial liabilities that would remain past the exit. The agenda is to identify the gap that will be created after the exit and how well you can sustain the gap after making the move.
Understand how you view the business
Here are some questions to consider. How far do you see yourself working in the business? How emotionally invested are you in the business? Is it a job or an investment or your identity? What hobbies do you have outside the business, if any?
Know your best strategic option
You have a plethora of exit options to choose from. You can sell or transition the business to an internal party (e.g. other shareholder, management, employee, family member). An internal sale or transfer can be the most seamless and least invasive since the internal party likely has good knowledge of the business already.
You also have the option of selling to an external, third party. Finding a third party, strategic purchaser is your best bet to maximize price.
You could also consider cultivating a new partnership/takeover with a private equity firm or a financial partner wherein you can retain ownership and continue to participate in the future or working towards an IPO (Initial Public Offerings). The key is to pursue the option that aligns with your predefined goals, market situation, liquidity offered and intended timing.
Center your goals around value creation
Every successful business venture involves hard work, persistence, dedication, and continual investment and improvement. You should be chalking out an exit plan that ensures you can optimize everything you have put in place to date and allows you to reach where you need it to be when the time comes to exit.
An independent business valuation today will help you identify areas to focus on to increase value and provide a benchmark from which to measure future growth.
For entrepreneurs who still shy away from creating an exit strategy, it’s time to ditch the status quo and review your alternatives in advance. Insufficient planning can prevent you from taking advantage of the right time and the right market conditions.
If you are seeking advice for an exit plan or a valuation of your business, get in touch with our experts to make the most of your investment.