What’s your exit strategy? (Yes, you need one!)

As Australian businesses face staff shortages and rising inflation, new data from Australia’s largest business organisation, My Business, shows more than half of small business owners don’t have an exit strategy.

The ‘Recipe for Success’ survey of nearly 2,000 Australian business owners found that 59 per cent of respondents didn’t have an exit strategy. The majority of survey respondents were female, aged between 34-44 years old and nearly half had been in business longer than five years.

Of those that did have a strategy, 41 per cent plan to sell their business to another organisation, 20 per cent plan to leave it to a family member and 15 per cent intend to eventually close down.

Richard Spencer, chief customer experience officer at My Business, says it’s important to have a business exit strategy mapped out. Even if you’re not planning on leaving anytime soon.

“Without a clear plan for how you will steer the business, and eventually wind up your involvement, you may end up selling the business for less than it’s worth,” says Spencer.

“The whole process can also end up being a lot harder than it needs to be – often business owners are left scrambling to get things in order.”

Preparing an exit strategy for your business

Spencer shares his top three things to consider when preparing your exit strategy.

1. Plan for the future you want

“Don’t just create a business plan but plan what you want from your business as an owner,” says Spencer. In the survey, 35 per cent of respondents were not entirely clear on what they wanted to achieve from owning their business.

Start early and map it out the lifecycle of your business when you’re doing your overall strategy. At some point in the life of your business, succession planning will be unavoidable. It makes sense to anticipate roughly when that will be.

2. Get your business valued

The data found that only 1 in 5 businesses have a formal valuation of what their business is worth. In fact, 40 per cent are simply guessing what their business is worth.

Some common methods for valuing a business include:

• assessing current market values
• looking at return on investment
• using business assets to calculate net worth
• finding the cost of starting a business from scratch
• estimating the future profit of a business.

You can do the valuation yourself, but if you can afford to, it’s worth seeking help from an accountant or a business adviser.

3. Actually write an exit strategy

You need one, but most businesses don’t have one in place – 60 per cent of respondents did not have an exit strategy. “Business owners are more likely to benefit from owning a business if they plan their exit as early as possible,” says Spencer. “Plan your way out as carefully as you planned your way in.”

Some key things to consider when creating your exit strategy are:

• Who you’re selling to
• How long you plan to continue operating the business – and a solid redundancy plan to scale back your involvement
• Your current financial records and projected profitability
• A set of business processes and protocols that can operate without you there.

Higher appetite for risk

As an interesting aside, the ‘Recipe for Success’ survey also found that small business owners were more inclined to be both goal oriented and self-motivated. They also have a greater appetite for risk than the general public. Perhaps that’s why succession planning wasn’t on the list for the majority of respondents…

“The other major personality trait we noticed that was more prevalent in small business owners was a commitment to lifelong learning,” says Mr Spencer. “We undertook the survey to gain more insight into what attributes makes a successful businessperson so we can empower other owners on their business journey and focusing on continued development and constantly learning, growing and adapting are key to success.”