BLT: Do you need an exit strategy?

Do you need an exit strategy?

Definition: “An exit strategy is a means of leaving one’s current situation, either after a predetermined objective has been achieved, justifying premises or decision makers for any given operational planning changed substantially, or as a strategy to mitigate imminent or possible failure.”

Source: Wikipedia

Eek! Sounds a bit serious, all this “justifying premises” and “mitigating against imminent failure”… which is perhaps why many of us fail to formulate an exit strategy in the first place?

So do we need to, and if so, how?

1. Types of exit strategy

“The best time to start thinking about your retirement is before the boss does.”

Author Unknown

For the purposes of this discussion, we didn’t deal with IPO or M&A (which are the preserve of larger SMEs), so for smaller businesses, the 3 most common exit strategies are:

i. Liquidation – this can either be a forced liquidation or a planned liquidation…the latter obviously being the more preferable.

ii. Lifestyle company exit – keep the expenses low and seek to retain all the profits rather than reinvesting them in the business (the company is often eventually dissolved).

iii. Sell to a friendly buyer – particularly common in family businesses which are passed down through the generations (although it was pointed out in the BLT group that family businesses are becoming increasingly rare as people jump from profession to profession).

2. Is an exit possible?

“The harder you work, the harder it is to surrender.”

Vince Lombardi

With the majority of us employed in the service industry nowadays, an exit can be increasingly difficult to achieve.

It is possible to put a value on a customer base (goodwill) and to monetise this, given that the physical assets of a service business are usually negligible.

Accountants and law firms frequently change hands (hence the increasingly lengthy titles!) but their services are required by law, hence customers tend to be ‘locked in’ (or unduly loyal!), enabling a value to be ascribed to the client base (1x revenues is a common starting point for negotiations). It does help that these firms also usually employ people, which means there are processes and not everything rests upon one person’s expertise or style; i.e. the revenues are replicable.

However, for many 1-man (or woman) operations, the business is built around that person’s expertise and personality, so can be next to impossible for somebody else to replicate.

Still, even when starting a business up, it is worthwhile thinking forward to how you might eventually exit that business, to see whether it would be possible to structure it in such a way that it became a saleable asset?

3. Do you want an exit?

“Retire from work, but not from life.” 

M.K. Soni

A bit harsh perhaps, but if you are exiting your business, what next – start another business, or retire?

The word itself – ‘retirement’ – is an interesting one – see Why all retirees should be jubilant! for a etymological history. It is also instructive that the first question most retirees are asked is “What did you do previously?” illustrating the degree to which we are judged by what we do…and if we are retired and do nothing…well….in short, think twice before you exit the working world completely!

Conclusion

“The trouble with retirement is that you never get a day off.”

Abe Lemons

Although the state pension age has risen steadily, it has not kept pace with advances in longevity, meaning that retirement now usually lasts a lot longer than in our grandparent’s generation.

Hence the importance of having a exit strategy of your own volition…before the final exit strategy!

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Retirement: Why all retirees should be jubilant!