4 Reasons You May Need a Business Exit Strategy

Are you an entrepreneur who doesn’t want to sell your business? You’re not alone. The most common reason entrepreneurs give for not wanting to sell our businesses is that we’re not ready. We think we’re invincible, or that we need a few more years to get things in order.

The truth is, as most business attorneys will tell you: You can never be too prepared. Exits are often unpredictable and can happen when you least expect it.

That’s why it’s so important to have a business exit strategy – a plan for how you will leave your business. Selling your business, or Exiting, can be an unprepared entrepreneur’s biggest nightmare. The first step is thinking about whether an exit is right for you, and, if so, when. In this blog post, we will a few of the most common reason you may need a business exit strategy in the form of frequently asked questions, and why it’s so important to be prepared for a successful transition.

1. Retirement

2. Health

3. Hitting the market at the right (or wrong) time

4. Outside opportunities

1. Selling your business to retire

At some point in virtually every entrepreneur’s career, the sweet thought of retiring to one’s favorite beach is tough to shake. Whether it be due to burnout, exhaustion, or even just being plain tired of making macro decisions that effect every aspect of the business, retirement is often on the mind of successful business owners. For many business owners, the idea of liquidating their small business and enjoying a lengthy retirement is an attractive proposition.

Business Exit Strategy

And in the COVID age, it’s become much more common – we as a society have certainly broadened our mindsets to lean towards enjoying life more. What sounds more enjoyable than cashing the chips in? However, it’s important to have a plan in place to ensure a smooth transition to prospective buyers and avoid any potential pitfalls.

This is where a business exit strategy consultant comes in – they can help you determine if selling your business and retiring is the right move, and help formulate a business exit strategy to make it happen seamlessly.

2. Selling your business due to health issues

Health is frequently looked over as one of the most important reasons to be prepared for an exit at all times. The truth is exiting is a tough enough hill to climb without the potentially destructive layer of health problems in a business.

No business is immune to the effects of an unexpected health scare, whether it be the founder’s personal health or that of a key team member. The pandemic opened a lot of entrepreneurs’ eyes in the past two years – preparing your business for an exit can help protect your assets, your family, your key employees, and your customers from the possibilities.

If you or someone close to the business is facing a serious health scare, an exit may be the best thing for all parties involved. Not only will it free up time and energy to focus on what’s important, but it can also help preserve the value of your company. Whether it be a succession plan paid out by insurance coverages or an exit sale strategy, having a business exit strategy in place could save your business if you become unable to continue operating due to health.

3. Selling your business to take advantage of the market

As previously mentioned, the pandemic has posed a myriad of issues for businesses, but it has also presented a windfall for others. The market works in mysterious ways, which is just one of many reasons why you should always be in touch with your accountants and attorneys – evaluating the market for exit opportunities.

We all have a number, whether we know it or not, that would force us – even encourage us – to sell if offered. Being prepared with an business exit strategy in an upward market is crucial in making sure that you are ready to sell if that offer comes up.

Unfortunately, conditions can move just as fast in the opposite direction. When the clouds are starting to darken and the horizon looks ominous, it may be time to exit while most of the company’s value can be fully realized in an exit. We’re not in the business of scare tactics, but the fact is that while no one knows when the next recession will hit, you can be sure that there will be another one.

The best thing you can do for your business is establish a business exit plan for the eventual peak market timing. Without proper preparation, between the time it takes for due diligence, finding a potential buyer, legal services, and other sales process items, the optimal timing may come and go before you’re able to take advantage of it.

4. Selling your business to pursue other opportunities

Successful entrepreneurs are often looking for new opportunities if they are not already involved simultaneously in multiple ventures. When an opportunity to invest in or buy a new business presents itself, it can be difficult to pass up – especially if the numbers make sense.

business exit strategy for startup

It may make absolute and prudent sense for an entrepreneur to take advantage of these opportunities, even if they necessitate a significant change in the time and resources being devoted to the current enterprise. With this in mind, it is sometimes crucial for the success of each business for the entrepreneur to execute an exit on his or her way forward with the new opportunity.

This may include hiring a manager to take over day-to-day operations, selling the business outright, or pursuing a partial sale where you retain a minority stake. The key is to have a business exit strategy in place that will allow you to take advantage of the new opportunity while also ensuring that your current business is protected.

The Next Step: Establishing Your Business Exit Strategy

Of course, this list is anything but all-inclusive. However, if any of these reasons resonate with you or your situation, it may be time to start thinking about how you will exit your business.

No matter the reason, having a business exit strategy in place is crucial for any business. A business sale lawyer or advisor can help you create a strategy that fits your specific needs and allows you to capitalize on opportunities when they arise. It is critical for entrepreneurs to avoid being faced with a last-minute decision to sell from a position of less-than-ideal preparation, a road that a business owner does not want to travel.

Regardless of your current situation, our best advice is to schedule a meeting with a business/corporate attorney who specializes in the buying and selling of commercial property to discuss your current position and to begin to prepare a business exit strategy for you and your company.

The timing is now. The need is critical. 

Mitchell R. Cohen, Of Counsel
Kotlar, Hernandez & Cohen

Mitchell R. Cohen

Mitch is Of Counsel at Kotlar, Hernandez & Cohen, where he concentrates his practice in corporate (including representation of closely held companies), commercial real estate (transactional and financing) and renewable energy (including solar and wind energy) law.

Read more about Mitch here.

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