While often used interchangeably, an exit plan and an exit strategy have subtle yet important differences. An exit strategy provides the overall approach, whereas an exit plan details the specific steps to execute that strategy. Think of the strategy as the "what" and the plan as the "how".
Here's a more detailed breakdown:
Exit Strategy
An exit strategy outlines the overall approach a business owner will take to leave their business. It's the broad roadmap. Considerations in an exit strategy might include:
- Type of Exit: Sale to a strategic buyer, sale to a financial buyer, IPO, management buyout, or passing the business on to family (succession planning).
- Timeline: A rough estimate of when the owner intends to exit (e.g., in 3-5 years, in 5-10 years).
- Financial Goals: What financial outcome is required or desired from the exit.
- Succession Planning: Considerations for ensuring stability and continuity of the business after the exit. The reference suggests that an exit strategy "may also incorporate succession planning to help ensure stability in the future ownership structure and direction of the business."
Exit Plan
An exit plan details the specific actions necessary to execute the chosen exit strategy. It's a more granular, step-by-step guide. Key elements of an exit plan might include:
- Valuation Improvement: Strategies to increase the company's value and attractiveness to potential buyers. This can involve increasing revenue, improving profitability, streamlining operations, and strengthening management. The reference notes that an exit plan can help achieve strong financial returns by "increasing the value of your business, for instance by focusing on 'maximising multiples'."
- Due Diligence Preparation: Gathering and organizing all the necessary financial and legal documents that potential buyers will require during the due diligence process.
- Marketing Materials: Developing a compelling pitch deck and other materials to present the business to potential buyers.
- Negotiation Strategy: Preparing for negotiations with potential buyers, including understanding the company's strengths and weaknesses and developing a clear negotiation strategy.
- Legal and Tax Considerations: Consulting with legal and tax advisors to ensure the exit is structured in the most advantageous way.
Table Summarizing the Differences
| Feature | Exit Strategy | Exit Plan |
|---|---|---|
| Definition | Overall approach to leaving the business. | Specific actions to execute the exit strategy. |
| Scope | Broad and high-level. | Detailed and tactical. |
| Focus | What the owner wants to achieve with the exit. | How the owner will achieve the desired exit. |
| Example | "Sell to a strategic buyer in 5 years." | "Improve EBITDA by 20% and prepare due diligence documents." |
| Considerations | Timeline, type of exit, financial goals, succession | Valuation, due diligence, marketing, negotiation, legal, tax. |
In summary, developing both a solid exit strategy and a detailed exit plan is crucial for maximizing the value of your business and ensuring a smooth and successful transition.
