Opening the door to your exit strategy

August 27, 2012 - Tags: Planning

A good exit strategy is something every small business needs, and something investors look for when buying a business. Having a strategy in place gives you more control over the future of your business, and helps maximize your potential returns.

Let's say you've owned your own clothing design business for many years, and have worked hard to build its value. You have many loyal customers, and strong sales revenue. Someday, you'd like to sell the business and enjoy a comfortable retirement. Planning ahead will help make things go smoothly when the time comes, and make sure you get as much from the business as you put into it.

Things to consider when developing your exit strategy:

  • Valuation of the business
  • Risk factors (industry conditions, operational issues)
  • Marketing to potential buyers
  • Transition of control

You can start your succession planning by consulting with professionals (accountant, lawyer, insurance broker) who have the expertise to help you plan your exit strategy, and to assist you with the transition when the time comes to sell.

An important but challenging task is business valuation. Determining what your business is worth is not always easy, but you want to establish a realistic and fair price. You will need to make decisions about things that will affect the price. For example, if you hold intellectual property rights, like a patent on a special design process or a trade-mark on your brand, you will have to decide if you transfer those to the new owner, or if you want to keep your property. The same goes for physical assets like machinery and inventory (fabrics, tools, etc.)

You will also need to plan your level of involvement in the transition process:

  • How will you market your business to potential buyers?
  • How will you prepare your customers for the changeover?
  • Do you want to train the new owner?

Thinking ahead will improve the likelihood of closing a sale, and reducing the level of stress on you and your business.

See our blog Keeping it in the family for some insight on handing your business over to a relative. You can find details on other forms of business closure in our section Exiting your business, and information from the CRA regarding your legal obligations in Closing accounts.

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