How to Create an Exit Plan for Your Business

Every business owner eventually faces a crucial question: "What happens to my business when I'm no longer here to run it?" That's where business exit planning or succession planning comes in. Whether you're retiring, preparing for unexpected events, or securing your company's future, a well-crafted plan is essential for ensuring business continuity and preserving value.

While many automatically think about family business succession or promoting from within, selling your business can often be the most profitable and practical succession solution. At Alderway, we're here to help business owners navigate this critical transition successfully.

Understanding Your Exit Strategy Options

Exit planning isn't just about deciding when to retire it's about maximising the value you've built and ensuring your business continues to thrive after your departure.

While family succession is common, statistics from the Family Business Institute reveal a sobering reality: only 30% of family businesses survive into the second generation, and a mere 12% make it to the third. This data suggests that looking beyond family, possible senior leaders in the business or even selling to a qualified buyer might often be a more viable path to preserving your legacy.

There are a range of exit planning options in our guide here and whichever route you choose, these planning steps will help make sure it's goes smoothly. Read more about the risks of not having an exit plan here.

Preparing for a Successful Transition: Key Steps

The exit planning process is not that different to developing a business strategy. It involves auditing all parts of your business, deciding on and optimising your goals and having well documented and efficient processes in place.

1. Evaluate Your Business's Leadership Structure

Before deciding on your succession or exit route, conduct a thorough analysis of your organisation's leadership landscape. This means understanding how your business truly operates – from formal reporting structures to informal decision-making processes. A clear understanding of these elements not only helps determine your succession options but also significantly impacts your business's value to potential buyers.

This process also helps to highlight any succession opportunities with regards to star employees and leaders within the business. Even if the family succession route is not right for you, there may be opportunities within the organisation you hadn’t considered.

A well-structured will organisation also demonstrate to any buyers that your business operates systematically rather than chaotically. Focus on developing and documenting clear reporting lines, departmental responsibilities, and cross-functional workflows.

Most importantly, ensure you have a strong management team that can operate independently of you. This self-sufficiency is crucial, buyers will pay a premium for businesses that don't rely entirely on the owner's daily involvement - often called a key-person risk.

Your processes and client relationships should also be thoroughly documented and transferable. Well-documented procedures prove that your business's success isn't dependent on any individual's knowledge, while transferable client relationships show that customer loyalty extends beyond personal connections to the broader organisation. These elements combine to make your business more valuable and attractive to potential buyers.

2. Build a Strong Management Team

Once you’ve evaluated the team, whether you're planning to retire, step down or sell immediately or in the future, you may have identified the need to develop a robust management team if you don’t already have one. If you’ve found a key-person risk, leadership transition planning is an important step that will also increase your business's value and attractiveness to buyers. 

Focus on:

• Creating a senior leadership team that can run the business without your daily involvement. This not only makes life easier in the short term and if you decide to pass the business on, it dramatically increases your company's marketability.
  

• Implementing mentorship programmes for key employees and professional development opportunities to strengthen your team's capabilities and develop more senior leaders.
  

• Consider bringing in external talent to fill any expertise gaps, even if talent management is a skill within your company, if you're a small business it can never hurt to look for outside experience. A well-rounded management team can significantly boost your business's valuation.

  
  

3. Document Everything

Professional buyers conduct extensive due diligence before purchasing a business, and thorough documentation can significantly increase your company's value while smoothing the sale process. Even if you decide not to sell, having everything documented will help operational efficiency in your business for the next leader.

Start with your operating procedures – these should capture every critical business process, from day-to-day operations to strategic planning. This documentation should be detailed enough that someone unfamiliar with your business could understand how things work, yet concise enough to be practical. Include workflows, decision-making processes, quality control measures, and any proprietary methodologies that give your business its competitive edge.

Client relationships represent another crucial area requiring meticulous documentation. Beyond basic contracts, maintain detailed records of client history, communication preferences, service agreements, and key contacts. Document any special arrangements, pricing structures, and the history of your relationship with each major client. This information helps buyers or successors understand the strength and stability of your client base and assess potential risks or opportunities.

Your vendor ecosystem is equally important to document comprehensively. Include master service agreements, pricing arrangements, delivery schedules, and any special terms you've negotiated. Note which vendors are critical to your operations and where you have backup suppliers. This information helps everyone understand your supply chain resilience and potential areas for cost optimisation.

Employee documentation extends beyond basic job descriptions. Create detailed records of roles, responsibilities, and reporting relationships, but also document unique skills, certifications, and institutional knowledge held by key team members. Include performance metrics, development plans, and succession possibilities within each department. This human capital documentation helps you understand your team's capabilities and potential and could be the deciding factor when it comes to your succession plan.

Financial documentation must be impeccable and comprehensive. Beyond standard financial statements, maintain detailed records of cash flow projections, growth forecasts, capital expenditure plans, and assumptions behind your financial models. Include analysis of seasonal variations, customer concentration, and market trends that affect your financial performance. If you do decide to sell, buyers will scrutinise these numbers carefully, so ensure they tell a clear and compelling story about your business's financial health and potential.

Finally, maintain thorough records of all intellectual property and assets. This includes patents, trademarks, copyrights, and proprietary technology, but also extends to less obvious assets like customer lists, marketing materials, and internal training programs. Document ownership status, registration details, and any licensing agreements. Clear documentation of these assets helps buyers and successors alike understand the full value of your intellectual property portfolio and its protection status.

This documentation not only makes your business more valuable but also streamlines the due diligence process during a sale.

4. Structure for Maximum Value

Working with professional advisors may be a good idea when preparing your business for sale and maximising its value. A professional business valuation conducted by experienced analysts or accountants will give you a clear understanding of your company's worth in the current market. This baseline valuation helps set realistic expectations and identifies specific areas where value can be enhanced before going to market. You can read more about valuing your business in our guide here.

Strategic tax planning should begin well in advance of any sale, as the structure of the transaction can significantly impact your after-tax proceeds. Experienced tax advisors can help you explore various options, such as asset sales versus stock sales, installment sales, or tax-free reorganisations, to optimise your tax position while maintaining an attractive proposition for potential buyers. 

Comprehensive legal documentation protects your interests throughout the sale process. This includes updating contracts, reviewing intellectual property rights, addressing any pending litigation, and ensuring all corporate records are current and properly maintained. Your legal team should also help draft confidentiality agreements, letters of intent, and the final purchase agreement with terms that safeguard your interests.

Financial clean-up and optimisation involve getting your books in order, which often means cleaning up old receivables, resolving any accounting irregularities, and ensuring financial statements accurately reflect the business's performance. This financial clarity not only increases buyer confidence but also helps support your asking price during negotiations.

Finally, identifying and implementing operating efficiency improvements can significantly boost your company's value. This might involve streamlining processes, reducing costs, or improving profit margins. Professional advisors can help identify these opportunities and quantify their impact on your company's valuation, making your business more attractive to potential buyers.

Family Business Considerations

If you own a family business, selling might seem counterintuitive at first glance. After all, the business likely represents years or even generations of family commitment, hard work, and shared history. However, a sale can often be the optimal solution that benefits both the family members and the business itself.

Professional management teams bring specialised expertise and objective decision-making that can accelerate business growth in ways family leadership might not achieve. These experienced executives typically have broader industry networks, access to capital markets, and proven track records of scaling operations. They can implement best practices and strategic initiatives without the emotional attachments that sometimes hold family businesses back from necessary changes.

The financial security provided by a sale can empower family members to pursue their true passions and interests. Rather than feeling obligated to remain in roles that may not align with their skills or aspirations, they can use their portion of the proceeds to start new ventures, further their education, or invest in other opportunities. This freedom often leads to greater personal fulfilment and stronger family relationships.

Selling the business can also prevent the deterioration of family relationships that frequently occurs when multiple family members vie for control. Leadership succession, strategic disagreements, and unequal involvement in day-to-day operations often create tensions that can damage both the business and family bonds. A sale eliminates these potential sources of conflict before they can cause lasting damage.

From a financial perspective, a well-executed sale often generates better outcomes for all stakeholders compared to continuing family ownership. Professional buyers typically have the capital and expertise to invest in growth initiatives, while family members benefit from liquidity and diversification of their wealth. This can provide greater long-term financial security than maintaining concentrated ownership in a single family enterprise.

Planning Your Exit Timeline

Whether you choose to sell to an external buyer or transfer ownership internally, timing is crucial. Consider documenting a timeline that suits you. An example below is:

• 3-5 years out: Begin preparing the business for transition.

• 2-3 years out: Focus on optimising operations and financials

• 1-2 years out: Start exploring market opportunities

• Final year: Execute the sale or transition process
  

Obviously, timelines can be shorter or longer but the key is to get as organised as possible as early as possible to ensure you are able to make the most informed decision when it comes to your business.

Making the Right Choice

At Alderway, we understand that succession planning involves both emotional and practical considerations. Selling your business might be the optimal solution if you:

• Want to maximise the financial return on your life's work.

• Don't have family members interested in or capable of taking over.

• Wish to ensure your employees' long-term security.

• Want to preserve your legacy while providing growth opportunities for your business.
  

While traditional succession planning often focuses on family or internal transitions, selling your business can provide the best outcome for all stakeholders. With proper planning and professional guidance, a sale can maximise your financial return while ensuring your business continues to thrive.

Contact Alderway today to discuss your succession planning options. Our team can help you evaluate whether selling your business might be the right choice for your succession plan.

Exit Strategy Options for Business Owners: A Comprehensive Guide

Understanding Exit Planning For Selling Your Business

Exit planning stands as one of the most critical yet often overlooked aspects of the business process. Whether approaching retirement or seeking to transition to new ventures, having a well-thought-out exit strategy is essential for ensuring both personal financial security and business continuity. Business owners must carefully consider not only their immediate needs but also the long-term implications of their chosen exit path.

A carefully planned exit strategy for business owners typically takes several years to implement effectively, allowing time to optimise business operations, strengthen financial performance, and prepare for a smooth transition. But don't worry if you've not thought about it, that's what we're here for. This guide will take you through some exit strategy options, whatever your timeline or if you'd like to get straight into the planning, we have a guide on how to plan your exit here. What's important to remember is that the implementation of an exit strategy early could make all the difference to the outcome, so the best time to start is now.

There are a few different options when it comes to your exit:

External Sale Strategy

This option represents one of the most compelling exit paths for those who don't have family or management succession options. If you're looking at stepping down, finding the right buyer can also help with your financial aspirations for retirement as this option typically provides the highest immediate financial return.

It's important to find a buyer that works for you. For example, you may want to stay involved with the business. Unlike traditional buyers, who might focus solely on financial metrics, Alderway conducts thorough due diligence while prioritising business continuity and cultural preservation. Our experienced team works closely with owners to ensure a smooth transition that protects the company's legacy while unlocking new growth opportunities. This approach combines the financial benefits of an external sale with the continuity advantages typically associated with internal transitions.

Furthermore, Alderway's proven post-acquisition strategy often includes retaining key management teams and investing in growth initiatives, providing sellers with confidence that their business will continue to thrive. Our flexible transaction structures can accommodate various seller preferences, from complete exits to partial ongoing involvement, making them an ideal partner for owners seeking both optimal value and responsible stewardship of their business. We have more information on what Alderway could do for your business here.

Management Buyout Options

Management buyouts (MBOs) offer another alternative that helps preserve company culture and operational continuity. In this scenario, existing management teams purchase the business, often through a combination of their own capital, bank financing, and seller financing.

This option can be appealing as the buyers already understand the business intimately and have relationships with key stakeholders. However, management teams may face challenges in securing sufficient financing, and the sale price might be lower than what an external buyer would offer.

This approach may also result in an experience gap post sale. Unlike an external sale, where fresh perspectives and expertise can drive improvements, this strategy lacks the external input needed to identify opportunities for maximising efficiency. Without an experienced new team bringing in both fresh ideas and additional capital, the business may not reach its full potential for growth and success.

Family Succession Option

Family succession represents a traditional exit path that can preserve a legacy while providing retirement security for the current owner. This approach requires careful planning to address both business and family dynamics.

Successful family transitions often involve years of preparation, including training the next generation in business operations, establishing clear governance structures, and creating fair compensation systems.

The emotional aspects of family succession can be complex, requiring open communication and sometimes professional family business counselling to navigate successfully.

Employee Stock Ownership Option

Employee Stock Ownership Plans (ESOPs) have been gaining popularity recently as an exit strategy that benefits both owners and employees.

This approach involves selling the company to employees through a qualified retirement plan, offering significant tax advantages for both the selling owner and the company.

ESOPs can enhance employee engagement and productivity while providing a market for the owner's shares. However, they require careful structuring to ensure long-term sustainability and compliance with complex regulations.

Public Markets and Partial Exit Options

Going public through an Initial Public Offering (IPO) or executing a partial sale represents another option for larger businesses. An IPO can provide access to capital markets and create a liquid market for shares, though it comes with increased regulatory requirements and scrutiny.

Partial sales, whether to private equity firms or strategic partners, allow owners to maintain some control while reducing their financial stake and risk exposure.

Managing the Emotional Transition

The emotional aspects of exit planning shouldn't be underestimated. Many business owners struggle with the psychological transition from active leadership to retirement or reduced involvement.

Professional coaching can help address these challenges and prepare owners for their next life phase. Additionally, maintaining some advisory role or board position post-exit can ease this transition while providing valuable continuity for the business.

Professional Guidance and Implementation

Implementing a successful exit strategy requires assembling a team of professional advisors, including legal counsel, tax specialists, financial planners, and business valuators.

These experts help navigate complex tax implications, structure the transaction appropriately, and ensure compliance with relevant regulations. They can also assist in developing strategies to minimise tax liability while maximising long-term financial security.

Preparation and Timing

The most successful exits result from careful planning and preparation, often beginning years before the actual transition. This includes implementing strong management systems, documenting processes and procedures, building a solid customer base, and maintaining clear financial records. These efforts not only increase the business's value but also make it more attractive to potential buyers or successors.

For many business owners, their company represents their largest asset and life's work. Choosing and implementing the right exit strategy ensures this asset provides maximum value for their next life phase while preserving the legacy they've built.

By understanding the various options available and working with qualified advisors, owners can develop and execute an exit strategy that meets both their personal and business objectives.

For more information on how to create an exit plan once you've decided on the option that's right for you, you can read our guide here.

Securing Tomorrow: Why It’s Worth Having an Exit Plan (Even if You're Not Ready to Leave)

By Elliot Conway

Quiet Pride and the Unseen Future

When I speak with owners of what we call Backbone Businesses - those critical, foundational companies that operate in physical, legacy sectors - there is always a deep and obvious pride in what they’ve built. In the majority of cases, they grew their businesses organically - often at great financial risk or uncertainty. They never once needed to rely exclusively on outside investors.

Most never took the time required to properly define an “exit strategy”. After all, they’ve had more pressing things to worry about: building something truly valuable, taking care of their employees, and satisfying their customers.

But if we step back, there’s a truth that eventually catches up with every entrepreneur: at some point, they will no longer be at the helm.

Whether that moment arrives through retirement, a new opportunity, health changes, or a simple desire for less day-to-day involvement, it’s vital that they - and the people counting on them - aren’t blindsided.

An exit plan is a way of caring and preparing for the future: a forward-looking blueprint that lets them decide how, when, and under what terms they’ll hand over or scale back their role.

Why It’s Important to Always Have an Exit Plan

1. Preserving Value 

   Founders have poured their heart and soul into building a business of value. Think of the many years and countless hours devoted to the enterprise. The financial worth is real, but so is the personal worth - the relationships, the reputation, the trust that’s been built. An exit plan ensures that value doesn’t evaporate if they suddenly can’t (or don’t want to) run the business day in and day out. Instead, it acts like a safety net, allowing them and their loved ones to harvest the fruits of their labour on their terms.

2. Guiding Decision-Making in Real Time

   It might sound counterintuitive, but planning an eventual exit can shape today’s decisions for the better. When founders appreciate that they might one day pass along the company or bring in new leadership, they are more effective at documenting processes, cleaning up financials, and investing in people who can manage effectively without them. Those steps not only make the business more valuable after they do leave - they also make the current operations stronger.

3. Mitigating Personal Risk and Stress Business ownership is tough enough without the added anxiety of “What if I can’t keep this up forever?” Having a roadmap for how they’d step away - whether gradually or all at once - provides a sense of calm. It reduces the worry that the owners will be cornered into a fire sale or forced to close up shop unwillingly. An exit plan is like an insurance policy for peace of mind.

4. Respecting Legacy and Community If the business is a cornerstone in its region or industry, the decisions made by its owners will have an impact on more than their personal finances. By laying out a thoughtful succession or ownership transition, they affirm the responsibility they feel toward employees, customers, and the wider community by effectively saying: “we care enough about what we’ve built together to ensure it endures, even if we’re not here every morning to open the doors.”

Responsibility at the Heart of It All

There’s a word that keeps coming up in all these conversations: responsibility. It’s about caring for something greater than ourselves and ensuring the business endures beyond our direct involvement. An exit plan isn’t merely a financial or legal tool, it’s a reflection of our responsibility to pass on what we’ve built in a sustainable and thoughtful way.

• Looking Out for Employees Many owners pride themselves on never missing a payroll, on offering stability to families who count on their salaries. If they exit abruptly with no plan, they risk jeopardising that stability. A defined strategy ensures their people aren’t left adrift.
  

• Protecting Vendors and Customers Loyal suppliers who’ve extended credit or customers who rely on consistent service form part of the ecosystem they’ve nurtured. A sudden change can disrupt those relationships. By communicating the timeline and transition plans, everyone remains on stable ground.
  

• Honouring Family and Future Generations If the owners have a family, they likely want them to benefit from their efforts - or at least not suffer from a chaotic handover. Setting up trusts, agreements, or other wealth-transfer tools can preserve both harmony and clarity.

The Emotional Side of Exiting

It’s one thing to talk about exit plans in a purely logical sense - valuations, contracts, deal structures. It’s another to face the emotional reality of stepping away from something that’s been part of the entrepreneur’s whole identity. Very few founders can flip that switch without feeling a pang of loss or uncertainty. A good plan acknowledges the human side:

• Taking Time to Reflect Before making any moves, owners should spend time asking themselves what they really want for their future. More travel? More time with children or grandchildren? Starting a new venture or non-profit? Clarity on these personal goals will guide how they shape their exit.
  

• Communicating with Openness Whether it’s family members, senior leadership team, or all-hands meetings, transparent communication prevents confusion and rumours. It also gives people a chance to express concerns and ask questions.
  

• Allowing a Gradual Shift If they’re not ready for a clean break, they should consider phasing out certain responsibilities over a couple of years. This not only helps them adjust but gives their successors time to learn the ropes.

Common Pitfalls (and How to Avoid Them)

Ignoring the Topic Until Crisis Strikes

Proactive planning is always cheaper and more flexible than a last-minute scramble. By starting early, they can maintain control rather than letting external events (health, market shifts, divorce) dictate their exit.

Overlooking the Necessity of Clean Financials

Keeping tidy records, separating personal expenses, and understanding key metrics are essential. Even a buyer with the best intentions will need clarity on where money flows and how risk is managed.

Underestimating the Value of Culture

Culture is often a backbone business’s strongest asset. If entrepreneurs fail to document or discuss “how we do things”, that culture is at risk of erosion when they come to leave. Transitioning leaders deserve a guiding manual - formal or informal - about what made the company special.

Lack of Trusted Advisors

Legal, tax, and financial professionals with experience in M&A or succession planning can save them a heartache (and a fortune!) Engaging the right support team early in the process makes the world of difference.

A Final Word on Legacy

Ultimately, an exit plan is about legacy - about ensuring that a life’s work serves not only the needs of the person or people who were directly responsible for the success, but also those who believed in them, bought their products, clocked in every day, and grew alongside and helped implement their vision.

By mapping out how and when to step back or step away, entrepreneurs are respecting everything they’ve built, giving it the best chance to remain a positive force for generations to come.

In many ways, the business they leave behind reflects what they valued all along: responsibility, relationships, stewardship, and resilience. They brought this enterprise to life, nurtured it through tough times, and seen it flourish in good times. Surely, it’s worth ensuring it continues to thrive, even after they shift into a new phase of life.

That’s why it matters for entrepreneurs to always have an exit plan - not to hasten their departure, but to guarantee their dedication carries forward in the most thoughtful and beneficial way possible.

For more on what to do next, you can read our guide on exit strategy options here or get in touch with us today if you'd like to discuss with our team.