In the business world, terms and words get tossed around, but the real meaning and understanding of these terms get lost in the verbal foray. Exit strategy and exit plan are often used interchangeably, but while they have similar meanings, they are not the same. Both are necessary for your sale and or dissolution of your business.
Exit plan: transferring the power and leadership from one party or group to another party and or group. This often focuses on the financial liquidation or transfer of the business.
Exit strategy: liquidation or dissolution of a business or aspect of a business.
Exit planning is the pathway set up to either have someone else take over running your business with you still the primary owner or it is the pathway to sell your business and transfer all power and funds to another business or person.
An exit plan does not always mean that you no longer own your business.
It is possible to set up the business to be self-sustaining. If your business is set up this way, you can find a person to take your place in the everyday aspects of running the business. Through this model, you can still continue to make money off your business, yet essentially retire. Exit planning essentially changes your business into an investment in your 401K.
If you have a great exit plan, buyers may pay more for your business. Exit plans can also encompass plans on smoothly transitioning ownership of your business to new ownership. A plan can make this process not only easier on you as a business owner, but make the transfer easier on your employees as well.
Exit strategy is ending your business. There are many reasons to dissolve your business:
>divorce
>legal changes
>life changes
>estate planning
>retirement
When you are creating your business, having an exit strategy is key to moving forward.
Exit strategies can be used as mile markers to assess if your new business is performing optimally. If your business is struggling, having an exit strategy mapped out for earlier on can help you get out before it destroys your finances. Exit strategies are great to have in place if there is a significant change in relationships between business partners or any joint legal or financial ownership of the business.
It may seem impossible at that moment to fathom your partnership going south or your marriage ending, but both of these situations can happen, and without an exit strategy, this can end up leaving you with more heartache than needed. The right exit strategy can put your mind at ease, even if you never have either of these issues occur.
Whether you are looking for the perfect exit plan or strategy, having a business advisor can be a game-changer. Having the right business advisor can be even better. A business advisor can not only assess your business, but help you find your needs and create both exit strategy and exit plans for you. Contact our experts today to learn more how we can help you.
For even more information on the difference between exit plan and exit strategy, contact a trusted business transition advisor. Encompass Transitions has been providing superior business advice for over a decade. Connect today to transition tomorrow!
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ETS Compass is my personal newsletter that provides thought-provoking topics and helpful guidance to business owners looking to navigate change in their businesses. Whether it is value enhancement or transition planning, it is my goal to educate you.
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Author: Sheryl Brake
Sheryl is the CEO and Founder of Encompass Transition Solutions, LLC and former partner of a top 25 national accounting firm. She has been working with business owners in a wide variety of capacities for more than 30 years. Sheryl lives in her home state of Colorado with her husband, Michael.