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Do business owners need a formal exit strategy from a company, and if so, when should it be developed?

A: Yes!  An exit strategy should be conceived upon formation of all businesses, and if not, as soon as practically possible thereafter.  Upon setting up a new business, owners have a clear vision of what they want to achieve.  To maximize the value received from a business it's essential to think about how to leave it further down the line.  Carefully planning an exit from the business can help to:

• Mould each business into the ideal shape for a chosen exit option;
• Groom successors if they're coming from within the business - whether they are a family member or part of the management team; and
• Exit at a chosen time, when the business is doing well and market conditions are advantageous.

Ideally, an exit strategy should be included in every start-up business plan.  It can then be reviewed and revised as necessary.

Business owners operating without an exit plan, should think about what a preferred exit option might be - and consider whether such option changes the way a business is run to help achieve it.  Exit strategies can affect:

• The value interests holders realize from the business;
• Whether departing owners receive lump-sum, deferred or staged payments;
• The future success of the business and its products or services;
• The ability of departing owners to retain any involvement in or control of the business; and
• Tax liability.

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