While reviewing business plans for clients I’ve noticed the tendency to exclude an essential component; that of an exit strategy. Perhaps this is due to the negative connotation associated with exit strategies such as the failure of a business and even the end of someone’s dream. However, exit strategies are set in place to provide the best option for a particular scenario rather than making a decision in haste and increasing the likelihood poor reasoning.

An exit plan can assist an entrepreneur in determining the most beneficial means to divest themselves of their company when they decide to leave their business. There may be numerous reasons for exiting, which can be similar to the reasons an employee resigns from a company. For example, employee’s leave for new opportunities for professional growth, increased salary or other more personal reasons such as a relocating spouse. Although, exiting from a one’s business may or may not be voluntary (i.e. bankruptcy) so having multiple strategies to exit is advisable (Prisciotta, & Weber, 2005).

Part of the exit plan should include the entrepreneur’s goal for exiting. For example, when a home owner decides to sell their home they consider the fair market value, market conditions and owner’s equity. From the preceding information the owner can determine the asking price, how much the sale will cost (realtor fee) and if they have enough equity to sell without supplying additional personal funds if the properties market value has fallen. Just as in selling a home, the best time of year to sell should be determined the particular type of business (Small Business Administration, 2013). Finally, acceptable terms should be determined such as how much cash, stock and if any hold-backs will be withheld in an escrow account (Kaplan & Warren, 2013).
Legal considerations such as filing the final tax return, paying final wages, benefit plans, paying final bills, reporting the business assets and reporting the sale of the business must all be addressed (Internal Revenue Service, 2013). To assist in the preceding tasks the services of a lawyer and tax accountant are useful to ensure legal compliance. Additionally, the Small Business Administration recommends a number of steps to close a business such as (2013):

– Document the choice to sell with a document
– Employ subject matter experts such as lawyers, accountants, bankers and brokers
– File documents to formally dissolve the business
– Cancel licenses and permits
– Adhere to labor laws (pay employees, provide adequate notice)
– Pay bills (taxes, debts), close bank accounts
– Keep documentation for 3 to 7 years