Portrait of an Exit Plan

As a business owner, you need to have a strategic exit plan in place--regardless of your age or the stage in the life cycle of your company. Why? Without one, no strategic road map exists for all stakeholders to follow and ensure everyone’s short- and long-term goals are met. Without a detailed strategic exit plan, you are less likely to achieve the very objectives you spent so much time developing and working toward.

Unfortunately, most business owners do not have an exit plan.  They tend to put off this process for as long as possible, because for one, they honestly do not know when to start.  That said, having sufficient time to design and then implement an exit plan is one of the most important factors in its success.
 
Ideally, you should develop an exit plan when you start your business. If you’ve missed that window, and many people have, it’s best to begin the process at least three years before you ultimately want to exit. 
 
Let’s assume your ultimate exit strategy is to sell your company to a third-party buyer; in fact, approximately 70 percent of business owners elect this strategy.  In contrast to selling publicly traded securities, no liquid market exists for the shares of privately held companies.  While the market for private companies is active, a great deal of time and effort is needed to package the company for sale, identify and contact the right buyers and negotiate and close the transaction. 
 
Depending on the type of investment banking firm you engage to sell your company, it typically takes anywhere from six to 18 months to sell a privately owned company.  This period can be significantly longer if your business has unique structuring requirements or other issues that limit the universe of potential buyers.
 
After the transaction is closed, you may continue to play a role in the company as an employee, consultant or advisor.  This transition can last anywhere from several months to several years.  It’s a good idea, therefore, to think of the actual exit occurring between 12 and 24 months after the closing depending on the length of the transition period.
 
Remember that one of your exit planning goals is to maximize your company’s value at the time of sale. Many value-enhancement projects take time to implement and show results.  Although this work can and should continue during the sales process, it is important to demonstrate concrete results to buyers when you put your company on the market.  
 
Timetable

                                      
The bottom line – the sooner you begin, the better the outcome.  As a result, you can never start planning too early.  This is why sophisticated buyers like private equity groups and venture capitalists develop a fully thought out exit plan before they invest in a company.