Exit Strategy Business Plan: Why Do You Need One?–PillarWM
Most wealthy investors and entrepreneurs start their ventures intending to make it into a highly successful and rewarding business. While an exit strategy may sound contradictory when you’re just starting your business, it is important to have one that offers clarity on your long-term goals for the company. The stakes are higher with businesses worth millions of dollars. You likely devote years to help the company grow, and you want to ensure that it is well taken care of after you exit.
More importantly, you will want to reap the rewards of all the hard work you put in. If you’re an ultra-high net worth investor with more than 10 million worth of assets in need of financial security, our exclusive guide is meant for you. It can help you seek the best financial advisor to help you achieve your short- and long-term financial goals.
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Table of Contents
An exit plan is similar to a financial plan in the sense that it outlines your future goals and helps you work towards achieving them. At Pillar Wealth Management, we offer expert wealth management services to high net worth and ultra-high net worth clients with 5 million to 500 million in liquid assets.
If you end up selling your business, you might find yourself with a huge influx of wealth to manage. Our wealth managers can guide you through the process. Get in touch with our team for your first meeting.
In this article, we will discuss what does exit strategy mean, what should an exit strategy include, and what are the five exit strategies that you can implement.
What are the 5 exit strategies?
Five of the possible business exit strategies are bankruptcy, liquidation, family succession, management and employee buyout, and selling to an investor (outside third party).
What is a good exit strategy?
If you need cash, sell the business. If you want to pass it on to a family member who can manage the business and sustain it, that may be a better strategy as it keeps the business ‘in the family.’
What is an exit strategy example?
One example is family succession, where a family member takes over the business, someone who is very familiar with the business, cares about it, and would be a good manager.
What are the types of exits?
Some business exits include liquidation, family succession, management and employee buyout, and selling to an investor. You could consider an M&A strategy, as well.
What Is an Exit Strategy Business Plan For?
You might be wondering, “What does exit strategy mean?” An exit plan or exit strategy outlines your goals to reduce or liquidate your assets in a business while making a substantial profit. You can sell your ownership rights to other investors or companies and be compensated accordingly. Some investors use exit plans to cash-out of investments and minimize their losses. Our guide talks more about shifts that improve your investment’s success.
An exit plan prepares you in the case there is an urgency to sell. You will have a strategy to stay organized and level-headed as you search for a substantial opportunity to sell your business. It helps you clarify your personal goals, time-frame, objectives, and how much cash inflow you expect to receive.
Professional guidance from financial experts can help you secure an arrangement on your business dealings that works for your and your company’s benefit. Wealth managers can create a customized financial plan that accommodates your financial goals and objects. Call us to schedule your first consultation with one of our fiduciary wealth managers.
When Do You Need One?
Whatever your reason for leaving the company may be, an effective exit strategy business plan is as crucial as hiring the right financial advisor. You can read more on that in our Ultimate Guide to Choosing the Best Financial Advisor for Families worth $5 Million to $500 Million.
Having an exit plan from the start of your venture allows you to implement strategies that can optimize your business’s performance goals. It can help you determine how the company will be run after your departure and how to ease your employees into the change of management.
An exit strategy also helps you understand the legal, tax, and monetary aspects of selling your share or liquidating your business. A team of experts can walk you through the process by identifying negotiable and non-negotiable terms that can save you time and effort.
Selling a company worth million dollars comes with tax liabilities. Your exit plan should outline strategies to mitigate your taxes and help you hold onto as much of your money as you can.
You can either demand a cash amount to be paid as a lump sum altogether, or you can opt for an annual payout that sustains your finances. In such cases, you might want to seek advice from a financial advisor or a wealth manager.
High-value companies have wealthy investors with large shares. When you exit, they will want to be compensated accordingly. You can learn about improving your investment’s success in our guide, Improving Portfolio Performance: The Shifts Multi-Millionaires Must Make to Achieve Financial Security and Serenity.
Which Exit Strategy is the Best for You?
There are different options when it comes to your exit strategy business plan. The one you go with will depend on your long-term goals, business’s value, time-frame, or values. Here we will discuss“What are the five exit strategies that you can use?”
1. Mergers or Acquisitions
A company that aligns with your business model or a company that has similar goals can purchase your business. While the process can take a while, it allows you flexibility in determining your involvement in the new business structure.
You can negotiate the price of the sale, and a merger might end up increasing the value of your business. Whereas an acquisition requires you to give up your ownership rights, but you get to set the price.
2. Initial Public Offering (IPO)
An initial public offering (IPO) is when a private business goes public by selling its stocks in the market. Public businesses typically go through a high-growth period, which can help you generate funds. However, an IPO is more suitable for large businesses due to the time and money it costs. It requires you to collect financial information, find an investment bank, come up with a stock price, and register with the the Securities and Exchange Commission (SEC).
Although the term sounds more like admitting defeat, it is much simpler and quicker than other exit strategies. To liquidate your business means to close your business and sell all your assets. Unfortunately, this also means that your employees, clients, partners, and customer base will be affected. Many wealthy entrepreneurs might not prefer this strategy after all the hard work they put into building their company.
4. Selling Your Stakes
Selling your shares to partners or investors allows the business to stay intact while you reap the rewards. This means giving up your rights as an owner and not being involved with the company any longer.
5. Management Buyout
As you prepare to sell your business, managers or employees might want to buy your company from you. This is favorable since the managers will have experience in running the company, and you might be able to stay involved in some capacity. Moreover, your company’s legacy can stay intact. However, not everyone might find the transition process smooth or amiable.
What Should an Exit Strategy Include?
If you’re working with a team of experts, they will take care of the aspects you need to consider for an exit plan. However, you want to be sure that your business is being treated the way that it deserves, which is why you should be aware of what goes into making an exit strategy work effectively.
Analyzing your business’s profitability is the first step. A history of solid profits is a good sign for potential buyers. Your time frame needs to be clearly defined in your exit plan, as it will allow you to prepare your goals accordingly.
Moreover, the timing you choose to put your business on the market is crucial for the purchase price. Your business exit plan should outline the market demands in your area and which exit strategy your competitors are following.
Depending on the exit strategy you use, you should hire a lawyer to deal with legalities concerning your business’s structure, buyer protections, and sale structuring. If you wish to remain an investor in the business, you might want to retain some of the ownership rights.
Alternatively, if you’re selling off the business, you might want to ensure that the new management team understands and respects your corporate values.
Tax implications are another concern that your exit strategy should cover. Financial professionals can help you mitigate your tax liability or allow the corporate to be responsible for them.
Who Can Help You with Your Exit Strategy Business Plan?
The devotion and commitment you dedicate to your business make any exit strategy a personal matter. If your entire financial profile is supported by that business, this may be the single most important decision in your financial life. Therefore, you need to hire the right professional to assist you in creating an appropriate business exit strategy.
Ultra-high net worth investors understand how vital it is to hire the right person to handle your finances. Our Ultimate Guide to Choosing the Best Financial Advisor for Families worth $5 Million to $500 Million can help you find a reliable financial advisor.
Typically, preparing an exit strategy business plan takes a team of financial specialists, each specializing in a particular field. Wealthy companies want the most qualified professionals to join their teams, which would include a wealth manager, an investment banker, a CPA, and a transaction attorney. You can schedule a call with us to get in touch with one of our experienced wealth managers.
The team working on your exit strategy relieves you of the burden of having to partake in the lengthy process of making tough decisions. Their combined expertise allows them to determine the company’s value after studying its financials. The transition managers help you draft the plan and assist employees in adapting to the new changes.
Knowing your business’s value is only one part of having an exit strategy business plan. If you have spent half your life working to build your company, chances are, you’re emotionally attached to it. This can lead you to make biased and disadvantageous decisions. Entrepreneurs tend to fixate more on business valuation and often get overwhelmed when it comes to selling their business.
At times, this can result in you losing your assets. You can read more about asset protection in our book, The Art of Protecting Ultra-High Net Worth Portfolios and Estates – Strategies For Families Worth $25 Million To $500 Million.
Financial specialists have the experience and the relevant skill-set to formulate your exit strategy. Planning your long-term goals early on in your business venture can help you use strategies that support your values and corporate vision. With professional advice, you can anticipate the next few years of your company and how it will help you reap the rewards you’ve earned.
High net worth and ultra-high net worth investors can accumulate a great deal of wealth from their business ventures. They can use this money to start another business or invest it in various assets. In any case, wealth management becomes a necessity for them.
Pillar Wealth Management has decades of expertise in providing wealth management services to clients with 5 million to 500 million in liquid assets. Schedule your first free consultation with one of our expert wealth managers to get started on securing your financial future.
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We enjoy working with high net worth and ultra-high net worth investors and families who want what we call financial serenity – the feeling that comes when you know your finances and the lifestyle you desire have been secured for life, and that you don’t have to do any of the work to manage and maintain it because you hired a trusted advisor to take care of everything.
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