Exit strategies key for small businesses

KERRI JACKSON
Last updated 14:20 24/06/2013

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When you start up your business, know how you're going to get out of it. Exit strategies are a key part of planning and growing any small business, experts say.

It might seem strange to open a new business and immediately think about how you will leave it, but a succession plan was an important part of ensuring a business succeeds, said MYOB New Zealand executive director Scott Gardiner.

''Planning how you want your business to grow and develop means having an end goal in mind and knowing exactly what it is that you are working towards, '' Gardiner said. ''Is this something you could look to sell on down the line for a significant profit? Or is it something you see yourself doing for years? Is the business something you want to pass on to family? Or are you likely to find yourself interested in a new challenge in a few years time?''

David Allison, business strategist from business incubator Creative HQ said that even if you intended staying in your business and growing it indefinitely, having some form of exit plan means everyone who is important in your business, as well as incoming investors, are all on the same page as to where the business is moving.

''And even if you intend on staying in the business it is likely most of your investors will want to exit at some point,'' Allison said. Having a plan helps manage that process.

Having a plan in place also meant a small business could respond quickly if they were approached unexpectedly by a potential buyer or investor, he said.

Gardiner said while it was never too late to start thinking about an exit strategy, the way a business was shaped from the beginning would have an major impact on what a business owner had to sell or pass on.

''For this reason, it pays to start thinking as early as possible about how you will be able to step away from what you've created and where the value will lie for someone else to take it over. Think about the structures you can put in place to enable them to be just as successful as you are as the business's owner.''

Any business could be built to provide some value for the owner as they exited. The key to doing so was good planning and advice, Gardiner said. ''Consider everything from identifying a potential lucrative long-term market for your business to maximising factors that will help you realise its full potential, like branding, IP, staff experience, product set, systems, processes, strategic partnerships, book keeping, customer base and customer service.''

A good source of that advice will be your accountant or financial advisor, who could highlight a business' strengths and help take emotion out of the decision, giving a dispassionate, independent view of the business' true value, Gardiner said.

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Establishing good systems and having sound financial records are also a vital part of an exit strategy, he said. ''To be able to demonstrate the true value of your business, you will need to be able to show a complete record of your performance over the life of the operation.''

But the form of any exit strategy will always be determined by the type of business owner, he said.

''Business owners tend to fit into one of three camps: the 'passionate professional' who runs their business for the sheer love of it; the 'business builder' who is focussed on building the great company of tomorrow or making a profitable exit to take on their next challenge; and the 'lifestyle seeker' for whom being their own boss offers freedom to enjoy more of life.

''Each of these different types of business owners will have their own set of requirements and considerations when formulating an exit strategy.

''Business owners who invest a great deal of themselves in the operation find it the hardest to exit,'' Gardiner said. ''Often, they are the whole business - they have built the reputation of the organisation on their own talents. To exit the business, they'll need to think very carefully about how to create something of value that doesn't depend on their involvement.''

- Fairfax Media

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