As small business owners, you focus more on growing the business than exiting it. Your business is your dream, the passion that you bring to fruition. But it is also true that your business may outlive you if things keep growing and you sustain the downturns. There will come a time when you have to exit your business and enjoy retirement. As that time approaches, the need for an exit strategy increases. 

What Is a Business Exit Strategy and Why Do You Need It? 

A business exit strategy determines what will happen to your business when you leave the company. It lays down a step-by-step path for exiting the business with minimal impact on business operations, finances, legal, and taxes. It also specifies how your finances and taxes will look when you no longer go to the office. 

Now, everything may not go as planned, and who can understand it better than you? Business is dynamic. Your personal conditions, economy, taxes, laws, markets, and trends keep changing. Your business exit strategy should change as things change. 

Imagine a situation where the business exit has to be rushed. You don’t want your life’s hard work to become a distressed sale. If you have a comprehensive business exit strategy, you will be more confident in handling such situations. Moreover, you can achieve the desired objective and make the exit process easy and profitable with a well-thought-out exit strategy. 

How to Get Started on Planning Your Business Exit Strategy? 

To plan an exit strategy, you need to know what you want, what you have, and what can be done. Once you know this, you can plan to make the most of what is available to get what you want. It may sound like a tongue twister, but it will make sense as we proceed with the exit planning.

What Do You Want from Your Business? 

The first step is to think it through. Take your time to plan out your exit. Ask yourself the following questions: 

  • What role do you want to play as you let go of the control? 
  • Do you still want to be involved in the business or completely hand over the operations? 
  • Do you want to keep earning dividends or get a lump sum amount? 
  • Do you want the culture and values with which you built the business to continue or make a huge profit? 

Once you determine what you want to achieve from the business exit, you can start thinking in that direction and plan your next step. 

What You Have? 

To get what you want, you have to start with what you have. For a business owner, their business is their most valued possession, as it also has emotions attached. But business is business, and you have to look at it like a buyer and see how much it is worth in dollar terms using a pragmatic approach. 

It is better to get professional help for business valuation. There are many techniques for valuing a business based on assets, goodwill, financial statements, client lists, and fair market value. A professional business consultant can help you determine your business’s worth in the market and enhance its valuation. While valuing your business, don’t forget to add your own value that you bring to the business. 

Sometimes, a business is worth more in parts than a whole. Keep that in mind when analyzing what you have. 

What Can Be Done In Terms of Exit Strategy? 

When you know the true worth of your business, you can now analyze the various business exit strategies that can help you achieve your objective. 

If we broadly classify strategies, there are only two ways to exit the business: 

  • Sell it to someone you know, like your family members or employees. 
  • Sell it to someone you don’t know, like a private equity firm, another business or competitor, or the public through an initial public offering (IPO). 

Sell it to someone you know: If you sell your business to someone you know, you may not get the best price, but you can retain control of the business through succession planning. The business culture and values can be preserved, and you can receive the money gradually in a phased manner. 

A tax consultant can plan a tax-efficient way to transfer the business’s shares through an estate freeze, family trusts, or holding companies. These are complex business structures that require significant reporting and legal work. 

Sell it to someone you don’t know: If you want to sell it to a third party, you may focus on enhancing the value of your business, keeping the finances and records updated, and building products and a growth strategy that is compelling to a buyer. To enhance your business value, balance growth and profitability as buyers might pay a premium for a growing and profitable business. 

When you sell a business to a third party, timing is of the essence. If the economy is doing well, your business is in demand, and the industry is consolidating, you may fetch a premium for your business. Hence, it is important to stay updated with the trends and watch out for prospective buyers for whom your business is valuable. 

Once you know what you can do to achieve the best possible outcome for your business, it is time to execute the plan. There is pre-transaction work, like setting up a corporate structure to reduce your tax implications. 

Contact McCay Duff LLP in Ottawa to Help You with Business Exit Strategies 

Our team of business valuation and tax consultants is well-versed in the laws and business structures. They are experienced in executing complex business exit strategies and well-equipped to handle complications. To learn how McCay Duff LLP can help you plan and execute your business exit strategy, contact us online or by telephone at 613-236-2367.