Don’t miss your exit – 5 reasons for early exit planning

Every business needs an exit strategy, but the mistake many business owners make is not thinking about that exit early on. Being late to the party when it comes to exit planning could mean you miss out on a great opportunity, but it can also negatively impact your business throughout its lifecycle. We set out five reasons why you should be planning your exit from the beginning.

What is an exit strategy?

An exit strategy is a plan for leaving a business. It can be personal (i.e. a plan for an individual Founder or business owner) or for a group of people (Board of Directors, key shareholders etc.).

A strategy to exit sets out how that departure will happen. Most commonly, the goal of exiting will be some form of sale (e.g. a merger, acquisition, IPO or buy-out), particularly when exits are planned early on. However, there are other forms of exit, including liquidation or bankruptcy.

For a guide to the most common exits, check out 7 exit strategies for founders and start-up business owners.

Why you should plan your exit early?

We work with many start-ups and entrepreneurs, and our advice is always the same – it’s never too early to plan your exit. An exit strategy won’t just set you up for the sale or handover of your business, it will help your business to grow and strengthen your exit potential.

What does exit planning look like?

Being prepared with an exit strategy means you have a clear plan for:
– How you will leave
– Have due diligence ready to go
– Investors understand your intentions
-Key communication lines are established
– You have plans in place for employees and assets.

Here are five reasons to plan your exit early

1. You never know when the right opportunity will come along

Some of the best opportunities in life are unpredictable. The same is true of exits. Imagine an incredible opportunity to sell your business arises and you’re not ready to capitalise on it. Planning your exit early means that you are prepared for any opportunity. You may even get a higher sale value as a result.

2. An exit plan helps you define what you want from exit

As a business owner, you must be clear about what you want from an exit. An exit strategy can help you to consider:

What your financial goals are for exit;
What will happen to the business after exit (including its employees and assets);
Whether you will continue to have any involvement in the business after exit; and
How long exit will take and what transition arrangements are required.

Knowing the answers to these questions is essential for founders, key stakeholders and employees.

3. Your exit strategy is also a framework for growth

An exit strategy is more than just how you want to sell your business. A good exit strategy will provide your business with a framework to grow. It will include goals and milestones and set out a journey for your business to follow and be measured against. Regularly evaluating your exit strategy helps you to assess whether your business is on track to meet the exit goals you have set and what progress you’re making.

4. An exit strategy can secure investment

Investors want a realistic picture of your business’ potential. An exit strategy provides investors with an assessment of how they can get a return on their investment and over what timescale. It also signals to investors that you are taking the business seriously and are considering their needs. This is particularly vital for angel investors and VCs who will need a successful exit to benefit from their investment.

5. An exit strategy can reduce risk and minimise disruption

Exiting a business can affect many people; employees, management team, shareholders, investors, suppliers, partners and so on. An exit strategy can help to minimise the impact on these people and help establish a managed transition to whatever the next phase of the business is after your exit.

Specialist exit planning advice for your startup

We provide stage-specific legal advice to start-ups and entrepreneurs to help them grow, and ultimately exit, their business on the best terms.

We can help you to identify an effective exit strategy and provide advice on mergers & acquisitions, management buy-outs and buy-ins (MBO / MBI), reorganisations and restructures, and buyer and seller due diligence.

We can also help you with key preparation steps for exiting, such as due diligence. Check out our guide on Due diligence for start-ups & how to set up a data room, where you can also download an example data room filing structure.

To speak to us about exits or to find out about our exits packages of legal advice and support, contact us today.