What is an Exit Strategy and Why Have One?

Mike Hill / February 22, 2019

Tags: Blog



An Exit Strategy for an individual is a plan for him or her to leave their business. It could be that this will be achieved when they finally retire, or, as is more likely the case these days - thanks to the government increasing the pension age - planning to retire earlier.

The individual may plan to leave after the business has made a certain amount of money, or they are insistent that they only want to be in business for a set number of years, such as a decade. The Exit Strategy is the way all of these things will be achieved i.e. whether they will wind the business up, sell to another individual or company, or pass the company on to their offspring.

Whatever the reason for the exit and how it is going to achieved, it makes sense to draw up an Exit Strategy before you even begin in business. Yes, that’s right – before you’ve even made your first penny. How so?

Why it’s important to have an exit strategy

Well, if you’re looking for investment in your company for starters, then you’ll be expected to produce an Exit Strategy from the off. In property development, for instance, your exit strategy could be when the project is complete and the apartments have been sold/rented out. This is exiting in a period of growth and therefore strength.

Another reason to have an Exit Strategy is to have something long term to work towards (however ‘vague’ the detail may be) i.e. you’re leaving in five years, so you can afford to work flat-out for a bit. If you have a retiral date from the off, then it can make you more clear-headed about making company decisions. It can also prevent you from having an overly-emotional attachment to your business.

If your exit strategy is all about your retirement, and you want to hand over the business to a younger member of the family, then you’d need to train them in advance so again, this would take quite a bit of planning beforehand. And certainly, if would affect the career trajectory of your son or daughter.

Worst case scenarios of an Exit Strategy

Meanwhile, who is to say that everything in your business life is going to go smoothly? Recessions happen, main suppliers and creditors get into difficulties, contractors become bankrupt – none of these things could have been foreseen, and yet they can have a huge impact on your business.

Having an Exit Strategy already in place, as well as keeping on top of your financial affairs, can help when you have to leave the business early. By doing this, you’ll have a good idea of what your company is worth, which means you won’t panic and sell below market value just because the business is under stress. You can hang on and wait for a far more realistic offer. Even if the business is in decline, and the sooner you sell the better, having good accountancy records and an exit plan will make this a less-traumatic time. In other words, an Exit Strategy can give you – the new business owner – a certain amount of security at the outset. And who wouldn’t want that?

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Tags: Blog

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