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Selling a Business

How to Create an Exit Strategy for Your Restaurant  

By   Jack

Are you a restaurant owner thinking about the future? It’s important to consider what will happen when you’re ready to move on from your restaurant. This is where an exit strategy comes into play. In this article, we will explore the ins and outs of creating an exit strategy for your restaurant, including why it’s important, the different types of exit strategies, and how to implement your plan effectively.

Understanding the Importance of an Exit Strategy

Before we dive into the specifics, let’s first understand why having an exit strategy is crucial for your restaurant. An exit strategy is essentially a roadmap for your business’s future. It outlines what will happen when you’re no longer involved in the day-to-day operations of your restaurant.

But what does this mean for you as a restaurant owner? Well, imagine this scenario: you’ve spent years building your restaurant from the ground up, pouring your heart and soul into every dish, every customer interaction, and every decision. You’ve built a loyal customer base, a strong reputation, and a profitable business. But what happens when you’re ready to move on? What happens when you’re ready to retire, explore new opportunities, or simply take a step back?

This is where an exit strategy comes into play. It’s like a safety net, ensuring that all your hard work and investment doesn’t go to waste. It’s a plan that allows you to gracefully exit the stage while ensuring the continued success of your restaurant.

The Role of an Exit Strategy in Business Planning

Your exit strategy plays a significant role in your overall business planning. It helps you maintain control over your future and ensures that your hard work and investment in your restaurant doesn’t go to waste. By having a clear plan in place, you can confidently move forward and make decisions that align with your long-term goals.

Think of your exit strategy as a guiding light, illuminating the path ahead. It helps you navigate through the complexities of transitioning out of your restaurant and into the next phase of your life. Without an exit strategy, you may find yourself feeling lost, unsure of what steps to take next.

With an exit strategy in place, you have a roadmap that outlines the necessary steps to take when the time comes. It provides a sense of direction and purpose, allowing you to make informed decisions that will benefit both you and your restaurant.

Key Benefits of Having a Restaurant Exit Strategy

There are several benefits to having a well-thought-out exit strategy. Firstly, it provides a sense of security and peace of mind. Knowing that you have a plan in place gives you confidence in your ability to transition smoothly. It alleviates the fear of the unknown and allows you to focus on the exciting possibilities that lie ahead.

Imagine being able to retire or pursue new ventures without the stress and uncertainty of what will happen to your restaurant. With an exit strategy, you can confidently pass the torch to a successor or sell your restaurant, knowing that you’ve set yourself up for success.

Secondly, an exit strategy allows you to maximize the value of your restaurant. By preparing in advance, you can enhance its appeal to potential buyers or successors. You can identify areas for improvement, implement changes, and position your restaurant as an attractive investment opportunity.

Additionally, having an exit strategy enables you to align your personal and business goals. It ensures that your decision to exit is in line with your desired lifestyle, financial objectives, and overall vision for the future. It allows you to make choices that prioritize your well-being and happiness, while also safeguarding the legacy of your restaurant.

Ultimately, an exit strategy is not just about the end of your restaurant journey; it’s about setting yourself up for a successful transition and securing the future of your hard-earned business.

Identifying Your Exit Goals and Objectives

Now that you understand the importance of an exit strategy, let’s delve into the first step: identifying your exit goals and objectives. This is a crucial aspect of the planning process, as it will guide your entire strategy.

When it comes to setting your exit goals, it’s not just about having a vague idea of what you want to achieve. It’s about being realistic and considering the current market conditions and industry trends. Take the time to evaluate your restaurant’s financial performance and determine what you hope to achieve from the sale or transition.

For some restaurant owners, the goal may be to retire comfortably and enjoy the fruits of their labor. They may have spent years building their business and now want to reap the rewards. Others may have a different vision in mind. They may want to transfer ownership to a family member, ensuring that the business remains in the family for generations to come. And then there are those who see their restaurant as a stepping stone to another business venture. They may want to use the proceeds from the sale to fund their next big idea.

Whatever your goals may be, it’s important to clearly define them. This will not only help you stay focused throughout the exit process, but it will also shape your entire exit strategy. It will dictate the steps you need to take, the timeline you need to follow, and the resources you need to allocate.

Aligning Your Personal and Business Goals

As a business owner, it’s crucial to ensure that your personal goals align with your business goals. Your exit strategy should reflect your personal aspirations, whether they involve family, lifestyle choices, or financial aspirations.

Take a moment to consider how much involvement, if any, you’d like to have in the restaurant after your exit. Do you want to completely step away from the industry and enjoy a life of leisure? Or would you prefer to maintain some level of involvement, perhaps in an advisory role? These are important questions to ask yourself, as they will shape the direction of your exit strategy.

Furthermore, think about your personal aspirations beyond the restaurant. Are there other interests or passions you want to pursue? Do you have dreams of traveling the world, starting a new business, or spending more time with your family? Your exit strategy should take into account these personal goals and ensure that they are aligned with your business goals.

By aligning your personal and business goals, you can create an exit strategy that truly encompasses your vision for the future. It will not only allow you to achieve your desired outcomes but also provide a sense of fulfillment and satisfaction as you embark on the next chapter of your life.

Different Types of Restaurant Exit Strategies

Now that you have identified your goals and objectives, it’s time to explore the different types of restaurant exit strategies available to you. We will discuss three main options: selling your restaurant, passing it to a family member, or liquidating your assets.

Selling Your Restaurant to an Interested Buyer

One of the most common exit strategies for restaurant owners is selling their establishment to an interested buyer. This option allows you to transfer ownership and responsibilities smoothly. It’s important to conduct thorough market research, consult a business broker, and properly value your restaurant to attract the right buyer and negotiate a fair price.

Consider factors such as the current state of your restaurant, its reputation, and its profitability when determining the best time to sell.

Passing the Business to a Family Member

If you have a family member who is interested in taking over the restaurant, passing the business to them can be a viable exit strategy. This option allows you to maintain your legacy while ensuring the continuity of your restaurant’s operations.

However, it’s crucial to establish clear expectations, communicate openly, and properly train your family member to ensure a smooth transition. Additionally, consult with legal and financial advisors to address any potential tax or legal implications.

Liquidating Your Restaurant Assets

In some cases, liquidating your restaurant’s assets may be the most suitable exit strategy. This typically involves selling off your equipment, furniture, and inventory. While it may not provide the same financial return as selling the business itself, it allows you to recoup some of your investment.

Consider conducting an inventory assessment and reaching out to restaurant equipment liquidators to determine the potential value of your assets.

Preparing Your Restaurant for the Exit

Once you have chosen your exit strategy, it’s time to prepare your restaurant for the transition. This stage involves enhancing its value, getting your financials in order, and addressing any potential legal issues.

Enhancing the Value of Your Restaurant

Increasing the value of your restaurant before the exit can attract buyers and potentially lead to a higher selling price. Consider making improvements to your establishment, such as updating the decor, refreshing the menu, or investing in marketing initiatives to boost its appeal.

Additionally, focus on maintaining strong financial performance, streamlining operations, and building a loyal customer base.

Getting Your Financials in Order

Prior to the exit, it’s crucial to ensure your financials are in order. This involves organizing and updating all financial documents, including tax returns, profit and loss statements, and balance sheets.

Consider consulting with an accountant or financial advisor to review your financial records and ensure they are accurate and up to date. This will instill confidence in potential buyers and facilitate a smoother transition.

Addressing Potential Legal Issues

Before finalizing your exit, it’s important to address any potential legal issues that may arise. This could involve reviewing contracts, leases, and permits to ensure they are transferrable to the new owner.

Consult with an attorney experienced in restaurant transactions to guide you through the legal aspects and prevent any unexpected challenges.

Implementing Your Exit Strategy

With all the preparations in place, it’s time to implement your exit strategy. This final stage involves timing your exit right, communicating your plans to stakeholders, and ensuring a smooth transition.

Timing Your Exit Right

Timing is essential when it comes to executing your exit strategy. Consider market conditions, industry trends, and the overall financial health of your restaurant before making your move.

Ensure that your timing aligns with your personal goals and that the restaurant is in a strong position for a successful transition.

Communicating Your Exit Strategy to Stakeholders

Once you have finalized your plans, it’s crucial to communicate your exit strategy to all relevant stakeholders, including employees, suppliers, and customers.

Be transparent and open about your intentions and provide reassurance that the transition will be seamless. This will help maintain trust and ensure a smooth handover of responsibilities.

Ensuring a Smooth Transition

As you approach your exit, take the necessary steps to ensure a smooth transition. This may involve training key personnel, documenting standard operating procedures, and creating a detailed transition plan.

Collaborate closely with the new owner, maintain open lines of communication, and be available for any necessary support during the transition period. This will help maintain the restaurant’s stability and reputation.

With a well-executed exit strategy, you can confidently move on to the next chapter of your life, knowing that your restaurant is in capable hands and your hard work will continue to thrive. Take the time to carefully plan and prepare for your exit, and reap the rewards of a successful transition.

Investor & Mentor

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Exit Strategies for Cafes and Restaurants

Planning how to leave is as important as planning how to start. No business is immune from these requirements. Within a notoriously fickle industry, hospitality entrepreneurs also require a business exit strategy .

After all, as of 2022, the number of restaurants falling into insolvency increased by more than 60% due to economic changes caused by rampant inflation and the COVID-19 pandemic. It demonstrates how vital having a contingency plan is.

What is a business exit strategy for the hospitality industry?

Whether your hospitality business has the stomach for an economic rollercoaster or not, the purpose of an exit strategy is to prepare you for anything. In short, an exit strategy for the hospitality industry accounts for various contingencies that could necessitate your departure, such as:

• Mergers and acquisitions
• Management buyouts
• Liquidation

The goal of your exit strategy is both offensive and defensive. As a company director, you will refer to your exit strategy to maximise your gains and minimise your losses.

Are business exit strategies important for cafes and restaurants?

Exit strategies are integral to any business, but the hospitality business requires exit strategies more than most because of this niche’s built-in volatility. After all, around 60% of small businesses fail within the first three years, with hospitality seeing some of the highest insolvency rates.

If you’re wondering why cafes and restaurants need exit plans, here are some of the primary reasons:

• They ensure you get the highest value if you have to sell.
• Planning protects your estate if you are facing a catastrophic loss.
• It ensures an orderly transition, whether you are selling to a competitor or facing a management buyout.
• Exit strategies contribute toward creating a strategic direction for your business .

As you can see, while most people talk about exiting a hospitality business from a negative standpoint, exit strategies also help define your growth.

Risks of not having a business exit strategy for your restaurant

Substantial risks accompany not having any form of a business exit strategy. Simply praying things go right for you is not a recipe for success – yet, two-thirds of SMEs find themselves in this scenario.

Not able to meet your goals

The whole point of starting a business is to achieve a personal or business goal. Without an exit plan, you risk departing without reaching these goals.

These goals could be retirement, the desire to pass on your business, or launching a new project in the future.

Reduced business value

Are you getting the full value for your business?

Without a plan, you’ll never know the truth, and it puts you at a disadvantage during negotiations, making you vulnerable to buyers looking to pick up your restaurant at a discount.

Remember, there are plenty of investors going out of their way to find successful businesses that have been undervalued. Knowing your value and your potential defends you against selling for less than you’re worth.

Not mentally ready to exit

Exit planning also supports entrepreneurs in knowing when to go. Developing that mental state to leave without regrets is tricky for any business owner.

With an exit plan, you have a defined picture that will support you as you make for the exit.

Challenges of selling a cafe or restaurant

Deciding to sell your café or restaurant is the best-case scenario for your venture. The problem is ensuring that you get the correct figure for your business. After all, the last thing you want is to sell your restaurant franchise for £1 million when its value was £2 million.

So, what are the main challenges of selling your business?

Valuations – Determining your value is notoriously tricky. This is where independent valuation companies come in because they can value your current business and its potential.

Market Saturation – The UK hospitality sector comprises 143,000 businesses employing 1.8 million people. Selling in a saturated market results in natural challenges; because why should someone buy your café and not someone else’s?

Employee Transition – Hospitality has a high employee turnover, so how will you manage the insecurity created by a potential sale?

It takes longer than you think to prepare for the sale of a business. Without adequate preparation, you risk chaos and disruption, regardless of whether the sale goes through.

Best types of exit strategies for cafes and restaurants

Technically, hospitality businesses follow the same exit contingencies as other sectors. Ultimately, while the nuts and bolts of running a restaurant or café differ, the ways you can exit remain the same.

So, what ideal exit strategies should you consider as a café or restaurant?

• Management buyout
• Merger and acquisition
• Employee buyouts
• Family succession

Note that this is a non-exhaustive list. Some restaurants may become franchises and create an Initial Public Offering (IPO). Still, since this is relatively rare, it’s unlikely that this contingency will get triggered.

What is important in a cafe business exit strategy?

Café business exit strategies require firm planning and preparation. The most essential piece of advice is to plan early. The worst time to plan for your exit is when you are already listing your business for sale.

Entrepreneurs should always begin exit planning during the early growth stages of their hospitality businesses. Beyond that, here’s what a founder must consider.

Market conditions

Your exit plan must include a complete analysis of current market conditions. Understanding your asset within the context of the hospitality landscape is critical to preparing your business for sale.

This is where you’ll notice significant crossover with other business plans, including growth and marketing strategies.

Money is everything in planning your exit strategy, including its timing. Defining a tripwire for a positive return on investment or loss will help you to trigger different contingencies.

For example, you may decide that an overall investment loss of 50% is enough to launch the liquidation aspect of your exit strategy.

Asset performance

Measure your asset performance for your hospitality business. Your asset’s performance is another limit you can apply when defining your exit strategy.

For example, if your restaurant is packed to the brim, it could illustrate the right conditions for selling your stake to an investor.

Your expectations

An exit strategy also accounts for your expectations. Not every investor wants to be serving drip coffee at the counter twenty years from now.

Any good exit strategy sets out your expectations. It could include a set retirement date or a desire to earn a specific amount to move on to your next project.

Exit options

All hospitality businesses must have every potential exit option outlined. On the other hand, you should define your ideal exit from day one.

These focuses could be on building a business ready to pass on to your child or the desire to sell to a large hospitality group when you’ve reached certain thresholds.

Exit timing

Finally, there’s timing. Sometimes, exit strategies are thrust upon you due to economic conditions. However, the optimal scenario is to depart on your terms.

When determining exit timing, you must consider various factors, including:

• Project expectations
• Market cycle
• Optimal exit strategy
• Your personal goals

Ultimately, you cannot control every part of your exit timing, but with proper planning, you can grasp your destiny with both hands.

How to choose the right exit strategy for your cafe

Exit strategies can be boiled down to a select few categories. The definition of a successful business exit is family succession, selling your stake, an IPO, an employee buyout, or planned retirement.

In other words, a successful exit strategy enables you to leave on your terms and set yourself up for your future plans, whatever they may be.

Choosing the right exit strategy is a matter of accounting for the overall goals of your café or restaurant and establishing the likeliest outcome based on the current state of your firm.

In short, only you can determine what the right exit strategy is, and that’s something that will differ for every entrepreneur because it’s something highly personal tempered by the expectations for the business.

How Cogogo can help with restaurant and cafe exit strategies

Exit planning is a complex endeavour, no matter your business. Trying to tackle it alone with no experience is the wrong way to go about it. Instead, enlisting a team of experts, like ours at Cogogo, ensures that you take control of a successful exit.

Our exit strategy experts are equipped to advise on a range of scenarios, including:

• Evaluating the value of your business.
• Defining an exit plan based on your goals.
• Making targeted recommendations for how to go about your exit.

Regardless of where you are, Cogogo professionals are friendly and approachable and will always provide an objective overview of your current exit plans and hospitality business. Talk to our team now to schedule a consultation call.

Sell up. Chill out.

Selling your business shouldn’t be a stress.

Owning a Restaurant Will Kill U (If U Let It)

Helping you manage your business so you can maintain your sanity., planning your business exit strategy: 10 steps to set you and your restaurant up for future success.

For most excited, first-time entrepreneurs, who are working hard to get their business up and running — whether it’s a restaurant, consulting business, tech company, or hair salon — the last thing they’re thinking about is a business exit strategy with the goal of transitioning away from their business.

And that’s completely natural. I mean, at the beginning of one’s entrepreneurial journey, what keeps you working 15-hour days is the eagerness to get your business started. So why would you be thinking about how you’re going to wind it all down? And a lot of newbie entrepreneurs likely go all in with the belief they’re never gonna wanna leave their business. Again, pretty normal thinking.

Table of Contents

However, you should be thinking about your business exit strategy from the beginning, like when you’re writing your initial business plan . No matter how great your business idea is and how excited you are to get it off the ground and eagerly work to grow it, you’re not going to want to do that forever. You’re just not.

And the reasons for wanting to exit your business are plentiful: You want to start another business; your life goals change; you want to move, but you have a brick-and-mortar business; you want/need time off to recharge after years of working 60+ hour weeks; you want to retire; the list goes on …

My point is that when you open a restaurant and are in the early stages of growing it, you might not think you’re ever going to want to leave that world. But life happens and priorities change. And you don’t want to be in a situation where you’re unprepared to exit your business; therefore, causing you to make rush decisions based on circumstance and emotions.

So let’s get you to prepare your restaurant’s business exit strategy now, long before you *think* you’re going to implement it:

10 Steps to Plan a Successful Business Exit Strategy

1. Assess Your Personal Goals and Timeline

Before diving into the logistics of an exit strategy, take a step back to assess your personal goals. Are you looking to retire, start a new venture, or simply step back from day-to-day operations? Understanding your objectives will shape the direction of your exit plan. Additionally, establish a realistic timeline for the exit process, considering both personal and business factors.

2. Evaluate the Financial Health of Your Restaurant

Conduct a thorough financial analysis of your restaurant. This includes assessing assets, liabilities, revenue streams, and profitability. Knowing the true financial health of your business is essential for setting a fair valuation and attracting potential buyers or investors.

3. Determine the Valuation of Your Restaurant

Valuing a restaurant involves more than just looking at revenue figures. Consider the tangible assets, brand reputation, customer base, and any unique selling points that contribute to the overall value of your business. Working with a professional business appraiser when planning your business exit strategy is a smart move. They provide an objective perspective on your restaurant’s worth, plus their recommended value holds more weight when negotiating with potential buyers.

4. Prepare Your Restaurant for Sale

Enhance the appeal of your restaurant by addressing any outstanding issues. This could involve updating equipment, renovating the space, or streamlining operational processes. A well-maintained and efficient business is more attractive to potential buyers or investors. But don’t crazy here and drop tens of thousands; one of your main objectives, after working so hard for so long, is to walk away with as much money as possible. Sometimes small cosmetic fixes are all that are needed.

5. Identify Potential Buyers or Successors

Determine who might be interested in taking over your restaurant. This could include existing staff, family members, fellow restaurateurs, or investors looking to enter the food industry. Develop relationships with potential buyers or successors early in the process to gauge interest and discuss transition plans.

6. Create a Detailed Transition Plan

A successful exit requires a detailed transition plan. Outline how the transfer of ownership will take place, including a timeline for handover, training for new management, and communication strategies with staff, customers, and suppliers. I highly recommend hiring a business attorney to assist with this step; you want a professional handling the nitty gritty legal aspects of an ownership transfer to protect yourself and your business. A well-executed transition plan minimizes disruptions and ensures a smooth handover.

7. Consider Financing Options

Because the restaurant industry is such a high-risk sector, potential buyers without personal funds to outright purchase your business, could have significant difficulties acquiring a bank business loan. So you may need to consider offering seller financing , where you act as the lender to the buyer. It goes like this: the buyer pays you a lump sum downpayment, much like how a house is purchased, and then they make monthly payments directly to you that go towards the restaurant’s purchase. It’s risky, but not an uncommon practice in the restaurant industry.

8. Consult/Hire Professionals

I briefly mentioned this already, but it’s a smart business move to seek guidance from professionals experienced in business transactions, such as business brokers, attorneys, and accountants. Their expertise can help navigate legal complexities, negotiate deals, and ensure that all aspects of the exit strategy are legally sound. Plus, nobody tells you this going into the restaurant industry, but selling a restaurant is incredibly difficult. A broker — if they’re good — will bring invaluable knowledge to the process, but even more importantly, buyer leads.

9. Communicate Transparently with Stakeholders

Open and transparent communication is crucial during the exit process. Keep your staff, customers, and suppliers informed about the impending changes. Assure them of your commitment to a seamless transition and address any concerns they may have. I do highly recommend holding off on making any definitive announcements until the sale is finalized and the selling agreement has been signed by both parties. Deals fall through all the time.

10. Plan for Life After the Exit

Once the sale is complete, plan for your very different life post-exit. Whether it’s retirement, a new business venture, or a well-deserved break, having a plan for the next chapter will help you transition smoothly into the post-restaurant ownership phase.

My Wrap Up on Planning Your Business Exit Strategy

Planning a restaurant business exit strategy is a complex, but necessary endeavor. By carefully considering your personal goals, valuing your business accurately, and executing a well-structured transition plan, you can ensure a successful exit that benefits both you and the future of your restaurant. Remember, a thoughtful exit strategy is not just about closing a chapter; it’s about opening doors to new possibilities, even if those possibilities simply involve catching up on years’ worth of lost sleep.

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How Restaurants Can Approach an Exit Strategy

Expert says a crucial step is setting emotion aside and facing the practical realities.

With colder months ahead and a second wave of COVID-19 predicted by some public health officials, the path forward for restaurants doesn’t become any easier.

Edward Webb, an advisory partner at accounting and consulting firm BPM, LLP has a number of clients in the industry who are determining the best exit strategy, which could be selling the business, winding down and closing permanently, or bankruptcy.

Backed by 30 years of experience in consulting and financial management, the accountant says restaurants are “absolutely seeing a sea change.”

“There has been, for years and years, exit planning, right?” Webb says. “And so, business owners are looking ahead years, and they’re thinking about what they may want to accomplish with their businesses and what they want when they leave them … But this is now something different. I used the term exit doing before and that’s exactly what’s going on.”

The harsh reality couldn’t be more relevant for Webb, who recently defended his dissertation at Temple University on ownership transition and development of harvest strategies, or a business plan to maximize value during an exit.

When undergoing this process, Webb notes that his firm begins by ensuring its clients are in the best position possible. That initial phase involves examining payroll and taxes—areas that could haunt an operator down the line—and dealing with landlords, which usually requires independent negotiations. Once that’s done, Webb says his firm can explore the exiting phase, if that step is necessary. 

Compared to pre-COVID times, the advisory partner explains that the underlying basics haven’t changed, but the way people are reacting has altered.

“We’ve noticed that certainly the mindset of the marketplace has changed a lot. So there’s a fairly high level of uncertainty out there,” Webb says. “There is this tendency for buyers and sellers to wait on the sideline and see what’s going to happen. Until now, it has been the case that the banks have been pretty soft. I’ve heard people say gentle. The banks have not been aggressive in pursuing ‘past due’ situations and pushing on borrowers, which could really have a big impact on this market.”

“Maybe if there is a systemic change that we’re seeing, it is acceleration of the process,” he continues. “… The economics of this are cranking up in a very negative way. And so, there’s this pressure. We are increasingly seeing folks out there in the market who are feeling urgency. And increasingly, we’re expecting there’s going to be the need for them to take action.”

If the restaurant is facing double-digit reductions in revenue, a decrease in staffing, and no immediate path to recovery, then the operator needs to contact a professional, Webb says. The businesses that are strongest financially are usually the ones that are able to wait the longest and potentially run the greatest risks.

He says it only takes a couple of hours of conversation to help a business owner uncover what their situation is. To further his point, he recalls the wise words of an old boss who said, “Your first loss is always your best loss.” Essentially, it means you want to identify where you currently are and make an assessment of what it means.

“if you don’t feel like you have an immediate path for filling the hole, then you begin to figure out how to get out, because it’s only going to get worse. It’s only going to get more expensive,” Webb says. “And so if your business model has been drenched by coronavirus and you can’t see how it improves, then it’s time to unwind. And that is a conversation that business owners should have. I will tell you that I talked to a lot of business owners along these lines, and there are times when guys reach out to me and we come to the conclusion that no, they should wait it out. And there’s good reasons why, and maybe they should take a couple of steps in certain directions to improve things, but the answer is not to exit. But in many cases it is. What you want to avoid, if at all possible, is the really expensive, risky situation. Nobody wants to go through bankruptcy. It’s painful. It costs a lot. If you can do a nonjudicial wind down and you can negotiate terms with all of your creditors and everybody can walk away and they’re not too seriously damaged by the situation, that may be a win.”

Webb notes this time can be especially difficult for restaurateurs because of their close connection to the business. The skills that served them well in opening the restaurant—the optimism and passion—can get in the way of hard decisions they may need to make.

Because the marketplace is dispassionate. Harvest strategy is not something an operator can place in a drawer for later—it’s something that one takes action on, he says. In his experience, the plan works best when the owners reach a point where they’re fully collaborative. If the business is big enough, it may require a few professionals and possibly lawyers. For the smaller businesses, it’s usually an advisor to direct an operator through the process.

A key step is facing the situation pragmatically and thoughtfully.

“For the business owners, we’re finding that they have to first get beyond the emotional side of it and they have to recognize where they are,” Webb says. “They have to deal with how that feels and face the practical realities that are in front of them. And for most of them, these are not business guys first. They’re restaurateurs. They’re doing that because they love it, and so they probably need to get some professional assistance with this—people who can help them assess the financial side, can make sure that they don’t leave any loose ends that they have negotiated, dealt with their liabilities, and that they don’t leave themselves open for trailing litigation, and things like that. What ends up happening is the creation of a plan, and it’s a plan for execution.”

Regarding what to do with the payout from selling the business, that’s when having a good tax preparer becomes crucial. Webb says his firm can put owners in touch with potential investment opportunities, but that’s not their specific duties.

“From our standpoint, we want to make sure that our clients are as well protected as they can be, and we maximize the circumstance on the exit and then whatever personal advice they need to protect themselves and maximize their personal wealth,” Webb says.

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Knowledgebase Topics

• General Information
• 1 - Preparation
• 2 - Valuation
• 3 - Exit Options
• 4 - M&A Team
• 5 - Marketing
• 6 - Letter of Intent
• 7 - Deal Structure
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• 9 - Closing
• 10 - Transition

Business Exit Plan & Strategy Checklist | A Complete Guide

Executive Summary It’s not enough to merely hand over the keys at the closing. You need a strategy. An exit strategy. An exit strategy, as the term implies, is a plan to assist you in exiting your business. All exit plans will vary, but they all contain common elements. The three common elements that all business exit strategies should contain are: A valuation of your company.  The process of valuing your company involves three steps, the first being an assessment of the current value of your business. Once this value is calculated, you should plan how to both preserve and increase that value. Your exit options.  After you have determined a range of values for your company and developed plans for preserving and increasing this value, you can begin exploring your potential exit options. These can be broken down into inside, outside, and involuntary exit options. Your team.  Finally, you should form a team to help you prepare and execute your exit plan. Your team can consist of an M&A advisor, attorney, accountant, financial planner, and business coach. If you are considering selling your business in the near future, planning for the sale is imperative if you want to maximize the price and ensure a successful transaction. This article will give you a solid understanding of these elements and how you can put them together to orchestrate a smooth exit from your business.

Business Exit Plan Strategy Component #1: Valuation

Your exit strategy should begin with a  valuation, or appraisal,  of your company. The process of valuing your company involves three steps, the first being an assessment of the current value of your business. Once this value is calculated, you should then plan how to both preserve and increase the value of your business.

Let’s explore each of these components — assess, preserve, increase — in more depth.

Assess the Value

The first step in any exit plan is to assess the current value of your business.

Here are questions to address before beginning a valuation of your company:

• Who  will value your company?
• What methods  will that person use to value your company?
• What form  will the valuation take?

Who:  Ideally,  whoever values your company should have real-world experience buying and selling companies , whether through business brokerage, M&A, or investment banking experience. They should also have experience selling companies comparable to yours in size and complexity. Specific industry experience related to your business is helpful, but not essential, in our opinion. There are loads of professionals out there who possess the academic qualifications to appraise your business but who have never sold a company in their lives. These individuals can include  accountants or CPAs,  your financial advisor, or business appraisers. It is essential that your appraiser have real-world M&A experience. Without hands-on experience buying and selling companies comparable to yours, an appraiser will be unprepared to address the myriad nuances of the report or field the dozens of questions that will arise after preparing the valuation.

Action Step:  Ask whoever is valuing your business how many companies they have sold and what percentage of their professional practice is devoted to buying and selling businesses versus other activities.

What Methods:  Most business appraisers perform business valuations for legal purposes such as divorce, bankruptcy, tax planning, and so forth. These types of appraisals differ from an appraisal prepared for the purpose of selling your business.  The methods used are different , and the values will altogether be different as well. By hiring someone who has real-world experience selling businesses, as opposed to theoretical knowledge regarding buying and selling businesses, you will work with someone who will know how to perform an appraisal that will stand the test of buyers in the real world.

Form:  Your M&A business valuation can take one of two forms:

• Verbal Opinion of Value:  This typically involves the professional spending several hours reviewing your financial statements and business, then verbally communicating an opinion of their assessment to you.
• Written Report:  A written report can take the form of either a “calculation of value” or a “full report.” A calculation of value cannot be used for legal purposes such as divorce, tax planning, or bankruptcy, but for the purpose of selling a business, either type is acceptable.

Is a verbal or written report preferable? It depends. A verbal opinion of value can be quite useful if you are the sole owner and you do not need to have anyone else review the valuation.

The limitations of a verbal opinion of value are:

• If there are multiple owners, there may be confusion or disagreement regarding an essential element of the valuation. If a disagreement does arise, supporting documentation for each side will be necessary to resolve the disagreement.
• You will not have a detailed written report to share with other professionals on your team, such as  attorneys , your accountant, financial advisor, and insurance advisor.
• The lack of such a detailed report makes it difficult to seek a second opinion, as the new appraiser will have to start from scratch, adding time and money to your process.

For the reasons above, we often recommend a written report, particularly if you are not planning to sell your business immediately.

We have been involved in situations in which CPA firms have  valued a business  but had little documentation (one to two pages in many cases) to substantiate the basis of the valuation.

In one example, the CPA firm’s measure of cash flow was not even defined; it was simply listed as “‘cash flow.” This is a misnomer as there are few agreements regarding the technical definition of this term. As a result, any assumption we might have made would have led to a 20% to 25% error at minimum in the valuation of the company. By having a written report in which the appraiser’s assumptions are documented, it is simple to have these assumptions reviewed or discussed.

Note:  When hiring someone to value your company, you are paying for a professional’s opinion but keep in mind that this opinion may differ from a prospective buyer’s opinion.  Some companies have a narrow range of value (perhaps 10% to 20%), while other companies’ valuations can vary wildly based on who the buyer is, often by up to 100% to 200%.  By having a valuation performed, you will be able to understand the wide range of values that your company may attain. As an example, business appraisers’ valuations often contain a final, exact figure, such as $2,638,290. Such precision is misleading in a valuation for the purpose of a sale. We prefer valuations that result in a more realistic price range, such as $2,200,000 to $2,800,000. An experienced M&A professional can explain where you will likely fall within that range and why.

Preserve the Value

Once you have established the range of values for your company, you should develop a plan to “preserve” this value. Note that preserving value is different from increasing value. Preserving value primarily involves preventing a loss in value.

Your plan should contain clear strategies to prevent catastrophic losses in the following categories:

• Litigation:  Litigation can destroy the value of your company. You and your team should prepare a plan to mitigate the damaging effects of litigation. Have your attorney perform a legal audit of your company to identify any concerns or discrepancies that need to be addressed.
• Losses you can mitigate through insurance:  Meet with your CPA, attorney, financial advisor, and insurance advisor to discuss potential losses that can be minimized through intelligent insurance planning. Examples include your permanent disability, a fire at your business, a flood, or other natural disasters, and the like.
• Taxes:  You should also meet with your CPA, attorney, financial advisor, and tax planner to  mitigate potential tax liabilities.

Important:  The particulars of your plan to preserve the value of your company also depend on your exit options, which we will discuss below. Many elements of your exit plan are interdependent. This interdependency increases the complexity of the planning process and underscores the importance of a team when planning your exit.

Only after you have taken steps to  preserve  the value of your company should you begin actively taking steps to  increase  the value of your company.

Increase the Value

There is no simple method or formula  for increasing the value of any business.  This step must be customized for your company.

This plan begins with an in-depth analysis of your company, its risk factors, and its growth opportunities. It is also crucial to determine  who the likely buyer of your business will be . Your broker or M&A advisor will be able to advise you regarding what buyers in the marketplace are looking for.

Here are some steps you can take to increase the value of your business:

• Avoid excessive customer concentration
• Avoid excessive employee dependency
• Avoid excessive supplier dependency
• Increase  recurring revenue
• Increase the size of your repeat-customer base
• Document and streamline operations
• Build and incentivize your management team
• Physically tidy up the business
• Replace worn or old equipment
• Pay off equipment leases
• Reduce employee turnover
• Differentiate your products or services
• Document your intellectual property
• Create additional product or service lines
• Develop repeatable processes that allow your business to scale more quickly
• Increase  EBITDA or SDE
• Build barriers to entry

Note:  A professional advisor can help you ascertain and prioritize the best actions for your unique situation to increase the value of your business. Unfortunately, we have seen owners of businesses spend three months to a year on initiatives to increase the value of their business, only to discover that the initiatives they worked on were unlikely to yield any value to a buyer.

Business Exit Strategy Component #2: Exit Options

After you have determined a range of values for your company and developed plans for preserving and increasing this value, you can begin exploring your potential exit options.

Note:  These steps are interdependent. You can’t determine your exit options until you have a baseline valuation for your company, but you can’t prepare a valuation for your business until you have explored your exit options. A professional can help you determine the best order to explore these steps, or if the two components should be explored simultaneously. This is why real-world experience is critical.

All exit options can be broadly categorized into three groups:

• Inside:  Buyer comes from within your company or family
• Outside:  Buyer comes from outside of your company or family
• Involuntary:  Includes involuntary situations such as death, divorce, or disability

Inside Exit Options

Inside options include:

• Selling to your children or other family members
• Selling to your business to your employees
• Selling to a co-owner

Inside exits require a professional who has experience dealing with family businesses, as they often involve emotional elements that must be navigated and addressed discreetly, gracefully, and without bias. Inside exit options also greatly benefit from tax planning because if the money used to buy the company is generated from the business, it may be taxed twice. Lastly, inside exits also tend to realize a much lower valuation than outside exits. Due to these complexities, most business owners avoid inside exits and choose outside options. Fortunately, most M&A advisors specialize in outside exit options.

Outside Exit Options

Outside exit options include:

• Selling to a private individual
• Selling to another company or  competitor
• Selling to a financial buyer, such as a private equity group

Outside exits tend to realize the most value. This is also the area where business brokers, M&A advisors, and investment bankers specialize.

Involuntary Exit Options

Involuntary exits can result from death, disability, or divorce. Your plan should anticipate such occurrences, however unlikely they may seem, and include steps to avoid or mitigate potential adverse effects.

Business Exit Strategy Component #3: Team

Team members.

Finally, you should form a team to help you plan and execute your exit plan. Many of these steps are interdependent — they are not always performed sequentially, and some steps may be performed at the same time. Forming a team will help you navigate the options and the sequence.

Your team should involve the following:

• M&A Advisor/Investment Banker/Business Broker:  If you are considering an outside exit.
• Estate planning
• Financial planning
• Tax planning, employee incentives, and benefits
• Family business
• Accountant/CPA:  Your accountant should have experience in many of the same areas as your attorney, along with audit experience and retirement planning. Again, it is unlikely that your CPA possesses all of the skills you need. If further expertise is needed, the CPA should be able to access the skills you need, either through colleagues at their firm or by referral to another accountant.
• Financial Planner/Insurance Advisor:  This team member is critical. We were once in the late stages of a sale when the owner suddenly realized that, after deducting taxes, his estimated proceeds from the sale would not be enough to retire on. An experienced financial planner can help with matters like these. They should have estate and business continuity planning experience, as well as experience with benefits and retirement plans.
• Business Coach:  A business consultant or coach may be necessary to help implement many of the changes needed to increase the value of your business, such as building infrastructure and establishing a strong, cohesive management team. Doing this often requires someone who can point out your blind spots. A coach can help you take these important steps.

Where to find professionals for your team

The best way to find professionals for your team is through referrals from trusted friends and colleagues who have personally worked with the professional in question. Don’t ignore your intuition, however. It’s important that you and your team members have good chemistry.

The Annual Audit

We recommend that you assemble your professional advisors for an annual meeting to perform an audit of your business. The goal of this audit is to prevent and discover problems early on and resolve them. As the saying goes, “An ounce of prevention is worth a pound of cure.”

Your advisors are a valuable source of information. This annual meeting is an opportunity to ensure that they’re all on the same page and that there are no conflicts among your legal, financial, operational, and other plans. An in-person or virtual group meeting enables you to accomplish this quickly and efficiently.

A sample agenda might include a review of the following:

• Your operating documents
• New forms of liability your business has assumed
• Any increase in value in your business and changes that need to be made, such as increases in insurance or tax planning
• Capital needs
• Insurance requirements and audit, and review of existing coverages to ensure these are adequate
• Tax planning — both personal and corporate
• Estate planning — includes an assessment of your net worth and business value, and any needed adjustments
• Personal financial planning

If you are contemplating selling your business, creating an exit plan will answer these critical questions:

• How much is my business worth? To whom?
• How much can I get for my business? In what market?
• How much do I need to make from the sale of my business to meet my goals?

Taking the strategic steps discussed in this article — assembling a stellar professional team and optimizing the team’s collective experience — will get you well on your way toward successfully selling your business and turning confidently toward your next adventure.

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July 25, 2024

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Exit Planning: What Is It Worth to You?  

3 Min Read 7.10.2019 By Connie Kelly

When it comes to business, restaurant owners recognize the importance of both planning and taking action, but the average business owner rates exit planning as a lower priority compared to other business-related needs. "I'm too busy," "I've got other pressing issues" or "I'll do it when I'm ready to act" are just a few common replies. 

When it comes to exit planning and business strategy, planning with the end in mind will impact every decision you make going forward in a positive way. 

One of the most concerning responses is: "I won't have a problem selling, I know several people who want to buy my business." This mindset indicates an owner that has put a lot of faith in a few random conversations, which most likely didn’t include a discussion of price, terms or any other detail on negotiating a business sale.  These types of deals rarely, if ever, come together and certainly shouldn’t be considered as a plan for exiting your business in the future.     

So, if you’re a restaurant owner who’s thinking about selling where do you begin?  The planning begins with a valuation.  A valuation will provide feedback on a most likely sales price (MLSP) for the company.  The process, while more of an art than a science, considers the present state of the business, the financial history, an industry review and several other business-related concerns.  

What usually surprises a first-time business seller is how tough the marketplace can be.  As a seller, the odds are actually against you from the start. Statistically only two out of 10 businesses listed will ever sell. The ones that don't sell are transferred in some form or fashion, perhaps handed down in a "generational transfer" or they cease to exist, by closing or liquidating. For a business that does sell, there’s still a great amount of time involved in managing a transaction. The current national average of time on the market is 9.3 months, from beginning to close of escrow. 

Sellers will get a glimpse into how savvy business buyers can be. The marketplace offers them many options to choose from, they typically do a lot of research beforehand, and most buyers are determined to see good ROI so they scrutinize every detail.  A seller that goes in negotiations unprepared will likely find themselves in difficult and frustrating negotiations.   

For the business owner who is not thinking of selling anytime soon, but wants to position their business for a future market, plan with the end in mind. When it comes to exit planning and business strategy, planning with the end in mind will impact every decision you make going forward in a positive way. 

While no two businesses are exactly alike, here are some general areas that benefit from exit planning: 

1. Financials 

The financials are a major consideration in any business sale. Exit planning will provide an opportunity to review and evaluate a financial strategy for the future. Buyers and sellers look at a business very differently, exit planning needs to reflect that. Some additional related topics to consider may include buyout packages, buy-sell agreements and insurance policies used to ensure business continuity. 

2. Leadership

Exit planning can help fine tune a company's leadership strategy. Business buyers are drawn to strength. They’ll pay huge sums for a successful and well-run business. Buyers look for a financially healthy business that has had strong leadership and a good reputation in the community. A strategy and a business plan can help a company create or reinforce that reality. 

3. Operations

Exit planning provides an opportunity to review and fine-tune the operational efficiency.  A business that is well-run, growing and prepared to navigate leadership change is very attractive to buyers. A plan for future exit, one that focuses on the strengths of the business, will add value, increase the level of buyer interest and also help ensure a smooth transition when the times comes.  

Industry experts have estimated that as many as 79 percent of business owners want to leave their business in the next 10 years.  Since successful exits typically require a set of actions that most business owners may not be aware of or prepared for, such as steps to improve value, increase potential for transfer and prepare for due diligence related issues, etc., it's never too early to begin the planning.  Some recommended processes can take a great deal of time to implement.  So as they say, the two best days to prepare your business for an exit is your very first day in business and today.

Connie Kelly

Connie Kelly is an Exit Advisor at The Business Exit Group, a coaching firm that helps small biz owners plan and prepare to sell their business. Previously, Kelly worked as a Business Intermediary in the San Francisco Bay Area. She has led teams through multiple acquisitions in a broad range of industries. She specializes in the hospitality industry.

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Exit plans are necessary to secure a business owner’s financial future, but many don’t think to establish one until they’re ready to leave.

An exit strategy is an important consideration for business owners, but it’s often overlooked until significant changes are necessary. Without planning an exit strategy that informs business direction, entrepreneurs risk limiting their future options. To ensure the best for your business, plan your exit strategy before it’s time to leave.

What is an exit strategy?

An exit strategy is often thought of as the way to end a business — which it can be — but in best practice, it’s a plan that moves a business toward long-term goals and allows a smooth transition to a new phase, whether that involves re-imagining business direction or leadership, keeping financially sustainable or pivoting for challenges.

A fully formed exit strategy takes all business stakeholders, finances and operations into account and details all actions necessary to sell or close. Exit strategies vary by business type and size, but strong plans recognize the true value of a business and provide a foundation for future goals and new direction.

If a business is doing well, an exit strategy should maximize profits; and if it is struggling, an exit strategy should minimize losses. Having a good exit strategy in practice will ensure business value is not undermined, providing more opportunities to optimize business outcomes.

[Read more: What Is a Business Valuation and How Do You Calculate It? ]

Benefits of an exit strategy

Planning a complete exit strategy well before its execution does more than prepare for unexpected circumstances; it builds purposeful business practices and focuses on goals.

Even though a plan may not be used for years or decades, developing one benefits business owners in the following ways:

• Making business decisions with direction . With the next stage of your business in mind, you will be more likely to set goals with strategic decisions that make progress toward your anticipated business outcomes.
• Remaining committed to the value of your business . Developing an exit strategy requires an in-depth analysis of finances. This gives a measurable value to inform the best selling situation for your business.
• Making your business more attractive to buyers . Potential buyers will place value in businesses with planned exit strategies because it demonstrates a commitment to business vision and goals.
• Guaranteeing a smooth transition . Exit strategies detail all roles within a business and how responsibilities contribute to operations. With every employee and stakeholder well-informed, transitions will be clear and expected.
• Seeing through business — and personal — goals after exit . Executing an exit strategy that’s right for your business’s value and potential can prevent unwanted consequences of exit, like bankruptcy.

Because leaving your business can be emotional and overwhelming, planning a proper exit strategy requires diligence in time and care.

Weighing your options: closing vs. selling

There are two strategies to consider for your exit plan.

Sell to a new owner

Selling your business to a trusted buyer, such as a current employee or family member, is an easy way to transition out of the day-to-day operations of your business. Ideally, the buyer will already share your passion and continue your legacy.

In a typical seller financing agreement, the seller will allow the buyer to pay for the business over time. This is a win-win for both parties, because:

• The seller will continue to make money while the buyer can start running the show without a huge upfront investment;
• The seller may also remain involved as a mentor to the buyer, to guide the overall business direction; and
• The transition for your employees and customers will be a smooth one since the buyer likely already has a stake in the business.

However, there are downsides to selling your business to someone you know. Your relationship with the buyer may tempt you to compromise on value and sell the business for less than what it’s worth. Passing the business to a relative can also potentially cause familial tensions that spill into the workplace.

Instead, you may choose to target a larger company to acquire your business. This approach often means making more money, especially when there is a strong strategic fit between you and your target.

The challenge with this option is the merging of two cultures and systems, which often causes imbalance and the potential that some or many of your current employees may be laid off in the transition.

[Read more: 5 Things to Know When Selling Your Small Business ]

Liquidate and close the business

It’s hard to shut down the business you worked so hard to build, but it may be the best option to repay investors and still make money.

Liquidating your business over time, also known as a “lifestyle business,” works by paying yourself until your business funds run dry and then closing up shop.

The benefit of this method is that you will still get a paycheck to maintain your lifestyle. However, you will probably upset your investors (and employees). This method also stunts your business’s growth, making it less valuable on the market should you change your mind and decide to sell.

The second option is to close up shop and sell assets as quickly as possible. While this method is simple and can happen very quickly, the money you make only comes from the assets you are able to sell. These may include real estate, inventory and equipment. Additionally, if you have any creditors, the money you generate must pay them before you can pay yourself.

Whichever way you decide to liquidate, before closing your business for good, these important steps must be taken:

• File your business dissolution documents.
• Cancel all business expenses that you no longer need, like registrations, licenses and your business name.
• Make sure your employee payment during closing is in compliance with federal and state labor laws.
• File final taxes for your business and keep tax records for the legally advised amount of time, typically three to seven years.

Steps to developing your exit plan

To plan an exit strategy that provides maximum value for your business, consider the six following steps:

• Prepare your finances . The first step to developing an exit plan is to prepare an accurate account of your finances, both personally and professionally. Having a sound understanding of expenses, assets and business performance will help you seek out and negotiate for an offer that’s aligned with your business’s real value.
• Consider your options . Once you have a complete picture of your finances, consider several different exit strategies to determine your best option. What you choose depends on how you envision your life after your exit — and how your business fits into it (or doesn’t). If you have trouble making a decision, it may be helpful to speak with your business lawyer or a financial professional.
• Speak with your investors . Approach your investors and stakeholders to share your intent to exit the business. Create a strategy that advises the investors on how they will be repaid. A detailed understanding of your finances will be useful for this, since investors will look for evidence to support your plans.
• Choose new leadership . Once you’ve decided to exit your business, start transferring some of your responsibilities to new leadership while you finalize your plans. If you already have documented operations in practice in your business strategy, transitioning new responsibilities to others will be less challenging.
• Tell your employees . When your succession plans are in place, share the news with your employees and be prepared to answer their questions. Be empathetic and transparent.
• Inform your customers . Finally, tell your clients and customers. If your business will continue with a new owner, introduce them to your clients. If you are closing your business for good, give your customers alternative options.

The best exit strategy for your business is the one that best fits your goals and expectations. If you want your legacy to continue after you leave, selling it to an employee, customer or family member is your best bet. Alternatively, if your goal is to exit quickly while receiving the best purchase price, targeting an acquisition or liquidating the company are the optimal routes to consider.

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

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Exit Strategies - All You Need to Know about Business Exit Planning

Kison Patel is the Founder and CEO of DealRoom, a Chicago-based diligence management software that uses Agile principles to innovate and modernize the finance industry. As a former M&A advisor with over a decade of experience, Kison developed DealRoom after seeing first hand a number of deep-seated, industry-wide structural issues and inefficiencies.

The question, “What is your exit plan?” tends to draw blank expressions when asked to business owners.

A survey of business owners conducted by the Exit Planning Institute shows that a startling 2 out of 10 businesses that are listed for sale eventually close a transaction, and of these, around a half end up closing only after significant concessions have been made by the seller.

Business owners need to think about exit planning before searching for potential buyers. The tools provided by DealRoom can be a valuable asset to any business owner looking to develop an exit strategy.

By working with a team of professional advisors, accountants, lawyers, and brokers, you can ensure the right documents are in place for a business exit whenever the time comes.

In this article, we talk about creating a business exit plan and how to make one for your business.

What is a Business Exit Strategy?

A business exit strategy outlines the steps that a business owner needs to take to generate maximum value from selling their company. A well-designed business exit strategy should be flexible enough to allow for unforeseen contingencies and account for the fact that business owners don’t always decide on their own terms when to exit. By creating a strategy in advance, owners can ensure that they can at least maximize value in the event of an unplanned exit from the business.

Investor exit strategy

An investor exit strategy is similar to that of a business exit strategy. However, investors look for a financial return on their exit from a company, so bequeathing is never one of the options considered. An investor will often have a list of potential acquirers in mind, as well as a timeframe, as soon as their investment is made. In this type of scenario, there is often an exit multiple in mind (i.e. a multiple of EBITDA or a multiple of the original investment made in the business).

Venture capital exit strategy

Another business exit strategy option is a venture capital exit strategy. As our article on venture capital outlines, if a company is venture funded then consider that your investor will have a pre-planned exit. As an early stage company, this is a natural part of taking investments. Usually, with a VC investment, the aim is for an exit after five years, either through an industry sale or an IPO, where they can liquidate their original equity investment.

Motives for Developing Exit Strategies

Technically, it is important for equity owners to have a broad outline of what an exit would look like. For example, the image below represents various motives ranging from financial gain to mitigating environmental risk.

Some of the common motives for business exit include the following:

Retirement - Arguably the most common reason of all motives is retirement. Business owners will inevitably retire at some stage, and it’s best that they have an exit strategy in place before doing so.

Investment return - A business exit strategy as part of a wider investment strategy - for example, the VC company planning to go to IPO after five years - makes the exit valuation part a component of the initial investment in the business.

Loss limit -A business exit is ultimately a kind of real option for a business. If the business is hemorrhaging money, the best option may be to exit immediately - ‘cutting your losses’ on the business, a sit was.

Force majeure - Like the examples of Covid-19 and Russia’s invasion of Ukraine, sometimes an investor or owner doesn’t really have a choice: The circumstances dictate that they have to exit.

Types of Exit Strategies

Sale to a strategic buyer

Strategic buyers are usually in the same industry as the company whose owner is looking to exit. And in other cases, the buyer can be in an adjacent market looking to compliment their products in an existing market, or expansion of their products into a market.

Sale to a financial buyer

Financial buyers are solely looking for a financial return from their investment in a business and the exit is the primary means of achieving this return. Examples include venture capital and private equity investors.

Initial Public Offering (IPO)

This form of exit, far more common with startups than mature companies, enables company owners to exit by selling their equity to investors in public equity markets.

Management buyout (MBO)

An exit through MBO would occur when the owner sells the company to its current management team, whose familiarity with the business technically should make them the best candidates to achieve value from an acquisition.

Leveraged buyout (LBO)

A leveraged buyout occurs when a buyer takes a loan or debt to purchase another company. The buyer also uses a combination of their assets and the acquired company's assets as collateral. Financial models can be used for multiple scenarios and simulations of when an LBO is an effective choice.

Liquidation

Liquidation can be used by a business owner to exit if they feel like the liquidation would yield cash faster or that the individual assets (i.e. property, plant, and equipment) of the business were more liquid than the business as a going entity.

Exit Strategy for Startups

Startups looking for VC investment can include an exit strategy as part of their initial pitch. It is not mandatory. Sometimes this can work when well, for example, when a startup founder is well versed in the industry and has a credible 5-year forecast.

Startup exit strategies depend on a few different factors:

Market timing

How have IPOs for startups performed in the past 12-18 months? If public markets are showing enthusiasm for companies like the one being pitched, it makes it easier to show how an exit can occur.

Comparable transactions

Similar to IPOs, companies can use comparable transactions (industry or private equity sales) to show investors their route to an exit. The comparable firms should be operating in the same or close to the same competitive space.

How to Put Together a Business Exit Plan

Remember that the purpose of the plan is to make the new business owner transition as straightforward as possible.

Although the steps which follow are general, nobody knows a business better than its owner, so take whatever steps are necessary to make your business as marketable to potential buyers as possible.

These steps also assume that you, the owner of a business, have weighed up the options elsewhere. Personal finances, family situations, and other career options are beyond the scope of this article.

Rather, the intention of the points below is to ensure that a business will be ready to sell in the fastest possible time at a fair price.

Business exit plan

• Know the business
• Ensure that finances are in order
• Pay off creditors
• Remove yourself from the business
• Create a set of standard operating procedures
• Establish (and train) the management team
• Draw up a list of potential buyers

1. Know the business

This sounds obvious but a business can lose focus quickly in the aim of diversification, to the extent that it becomes ‘everything to every man.’

This may be useful in the short-term for revenue streams, but just be sure that your business has focus. It will help you find the right buyers when the time comes and to be able to communicate which part of the market your business occupies.

2. Ensure that finances are in order

This should be a priority regardless of any future business plans.

But if you intend to sell your business at short notice, it's best to have a clean, well-maintained set of financial statements going back at least three years.

3. Pay off creditors

The less debt that a business holds on its balance sheet, the more attractive it will be to potential buyers.

A common theme among small business owners in the US is thousands of dollars of credit card debt. This can be a red flag to many buyers and should be paid off as soon as possible.

4. Remove yourself from the business

How important are you to the day-to-day operations? If your business would lose more than 10% of its revenue were you to leave, the answer is “too important.”

If revenues are tied to the owner, buyers are not going to want to buy the business if the owner is going to leave right after.

Although it can be a challenge, seek to minimize your direct impact on the business, in turn making it more marketable.

5. Create a set of standard operating procedures

Closely related to the above point, ensure that your business has a set of standard operating procedures (SOPs), ideally in written form, that would allow any owner to maintain the business in working order merely by following a set of instructions.

6. Establish (and train) the management team

Are the existing managers capable of taking over the business and running it as is? If you leave the business for a vacation and one of your managers calls you several times, the answer to this question may be ‘no’.

They may need more training, or you may need a different set of managers. In either case, having a capable team in place will be valuable whether you decide to exit your business or not.

7. Draw up a list of potential buyers

A list of buyers should be made and refreshed on a reasonably regular basis. Ideally, you would know their criteria for buying a business, but this is not always practical.

Keeping a long list of buyers means that you can reach out to them at short notice if it is  required at some point in the future.

This list is likely to include at least some of your managers or suppliers.

Importance of Exit Strategy

Many owners make the mistake of thinking that a business exit plan means the same thing as a ‘retirement plan’, believing that they can start thinking about putting one together as soon as they hit 55 years of age.

This is an error. Not because your departure is impending, but because it doesn’t give you the flexibility.

Instead of looking at a business exit plan as a retirement plan, rethink it as a divestment option.

An alternative way of thinking about this is, what happens to the business owner that doesn’t have an exit strategy? Think of the value destruction that occurs to the business if something unexpected happens and the owner has to make an unplanned sale, at a discount, in unattractive market circumstances, or even at a time of personal loss.

Instead of thinking about the business exit as something that will happen in the future, rethink it as something that could happen at any moment.

Exercising critical thinking to write a business exit strategy can be exciting as well as enlightening. Thinking of an exit as an end state is not the best approach since this limits businesses to a strict definition. Rather, consider how the process can be supportive of a business' growth strategy. Take these top three considerations:

• Financial considerations: If the exit strategy has a target revenue number in 5 years then how will the business get there? What financial dashboards are needed to properly run the company? How will expenses be managed so a business does not outspend against earnings?
• Supply chain considerations: What products will need to be in your catalog to maximize margins? What inventory turns ratio are you aiming for on a monthly basis?
• People considerations: Who do I hire to grow the company exponentially? What benefits do I offer to attract the best talent but don't cause complications at the exit? How do I write the force majeure so I protect the company and employees?

A business's primary goal is long-term value generation to its customers, itself, and its stakeholders. Having a thoughtful exit strategy shows the maturity of a business's Leadership towards longevity and value creation. There are many facets of the journey from owner motivation to financial strategies.

At DealRoom we help the owners of businesses of all sizes prepare for this eventuality. Our Professional Services team is ready to help businesses think through these details. It is important that an exit strategy be a journey throughout the growth stages.

Talk to us about how our tools can be an asset for you in your exit plan.

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What's Your Exit Strategy?

RH Staff | Jan 01, 2005

IN MANY RESPECTS, the restaurant industry is no different from most other industries. It faces the same cyclical ups and downs, changing consumer preferences and similar economic factors that other service and manufacturing industries do.

A key difference between foodservice and other industries is the composition of its underlying ownership. Unlike other industries, individual ownerentrepreneurs comprise the majority of ownership in the restaurant industry. While our industry has its share of publicly traded companies, the main engine is fueled by entrepreneurial activity.

Most restaurant entrepreneurs ultimately are seeking the profitable sale/transfer of their business or some other related exit strategy. In many cases, the entrepreneur views this liquidity event as the final one-time windfall that will provide for retirement and long-term financial stability.

The dynamics of entrepreneurial ownership create unique implications for a restaurateur's successful exit strategy. Two factors are critically important: The entrepreneurial life cycle, also called the e-curve, and the application of a disciplined portfolio strategy. Understanding the relationship between and the importance of coordinating these two concepts is the key to a successful exit strategy.

The e-curve can be segmented into the following stages: inception/ startup, expansion/growth, maturation and transition/exit.

During the inception/startup phase, the restaurateur conceptualizes a restaurant or buys into a chain concept, identifies a core market, raises capital and begins marketing. Risks are high, but hopes are higher.

At the second stage, expansion/ growth, the restaurateur proves his or her concept a success and scales it into multiple units as additional markets are secured and samestore sales experience strong growth. The restaurateur's passion and enthusiasm generally peak during this period.

During the maturation phase, the concept has reached a level of critical mass and developed some operational inertia. Profitability and size peak, but overall growth rates tend to slow as the concept matures. During this stage the successful restaurateur often will reap the rewards of success and spend less time on day-to-day business demands. Asset diversification becomes a consideration; the owner may start to think about selling the business and consider retiring or reinvesting into another business. At the same time, the successful restaurateur often spends more time in the pursuit of another passion. At this time, called the lifestyle inflection point, it is common for the business to experience a period of slower or static growth.

In the final transition/exit stage, the restaurateur has spent a good portion of her professional life building a successful concept and realizes a bulk of her wealth is tied up in the business. Accordingly, as a matter of intelligent wealth management, she concludes that it's time to diversify assets by harvesting the success of the business.

Definitive profit/timing objectives—Professional investors typically set a specific time frame during which they intend to hold an investment and/or a specific level of desired profitability. When their goals are met, they are disciplined in executing an exit strategy. By contrast, the entrepreneur-owner usually does not preestablish specific timing or capital gain objectives. It's easy to understand why. Each entrepreneur will follow the life cycle according to a different schedule, so it can be difficult to predict the future.

Passive versus active involvement—Professional investors have a passive role in the day-to-day operations of their investments, enabling them to focus exclusively on the overall strategic performance attributes of the investment. Entrepreneur-owners, on the other hand, are consumed by day-to-day responsibilities and active management that often fulfill a much-needed sense of accomplishment, not to mention providing a current living income. As a result, they rarely focus, as professional investors do, on the ultimate value of their investment or on a strategy for harvesting that value.

Emotional attachment— The entrepreneur-owner has a passionate attachment to the business. It is a living, breathing entity that he has created and, in a very real sense, it's "his baby." Dealing with the separation and ultimate sale of the business, therefore, can often be difficult because the business is more than just a livelihood末it's a large part of the owner's identity. The professional investor, on the other hand, has no emotional involvement with the business; in addition, it usually is much simpler to liquidate a position than to sell an entire business built over a lifetime.

Coordination: The Key How do the e-curve and a disciplined portfolio strategy influence a satisfactory exit strategy? The answer is coordination.

Given future growth prospects for the business and the entrepreneur's active and personal involvement in managing the company, objective performance measurements are not the sole determinant of the optimum time to sell a business. For instance, if the business is still in the first three stages of its e-cycle, it's not time to sell. Growth has not been maximized; thus, the market may be favorable, but the life cycle stage is not. Executing a transaction when both conditions are favorable requires the entrepreneur to coordinate her position on the ecurve with optimum objective performance measurements, including current market conditions.

For instance, as the entrepreneur moves into the maturation stage, the timing on the e-curve becomes more advantageous. A shrewd owner will begin to apply and incorporate key portfolio strategies (e.g., market timing, profit objectives, company performance, postsale reinvestment options, etc.) to be ready to act when conditions are favorable.

The benefits of coordinating these two factors are clear. Acknowledging in advance that he will inevitably reach Stage 3, 4, and the lifestyle inflection point (see box on previous page) will better equip the entrepreneur to recognize these stages as they are occurring and will help him act swiftly at exactly the right time. This preparation will better enable the restaurateur to sell from position of strength while in the beginning of Stage 3 and before value declines, as it so often does in late Stage 3 and 4.

Frequently, an entrepreneur does not actively plan for transition and fails to establish objective measurements as part of an overall portfolio strategy. This often results in holding onto the business too long, thereby missing the optimum window of opportunity and ultimately diminishing the value.

Often, for example, owners with businesses well into the maturation phase have lost the enthusiasm and passion they once had for the business but fail to pursue an exit strategy. Frequently in such situations, the company's profitability has declined due to passive management, concept trends, commodity price increases or other factors outside the owner's control. The entrepreneur delays preparing for an exit because he believes that waiting will increase the value of his business.

Some owners who have experienced tremendous recent profitability believe things will continue to improve unabated. As a result, they assume waiting will yield higher profits and value. Enthusiasm is dangerously high. Typically, they ignore the risk associated with the execution of the business, competition and general market conditions.

Finally, owners in the third or last business stages sometimes recognize that it is time to sell, but have not prepared for the emotional separation from the business. Frequently, these owners have not identified a suitable activity/ investment to replace the day-to-day function of running the business. The business simply is still too much of a part of the owner's identity and therefore key decisions are set aside.

In all three situations, the owner's delay often results in a poorly timed exit strategy. So, what should an entrepreneur do if faced with one of these issues?

Timing Is Everything A common mistake during the maturation phase is an attempt to recoup lost profits or gain new profits at the expense of time or missing a favorable market. While everyone would like to sell when their company is at peak performance, this not the only key consideration. Trying to maximize the value by delaying a sale could backfire and actually cost the owner money, even if performance improves. How? Like everything else, markets for restaurant concepts fluctuate over time.

To see how this works, consider the example in the box above. In this example, the restaurant's sales and EBITDA revenues improved by 10 percent, total proceeds declined nearly $1.0 million. The reason? In this example, market multiples contracted, and the purchase price declined from 6.5X EBITDA to 5.5X EBITDA. Conversely, the market could go in the other direction. That is why it is critical to assess market conditions and coordinate your timing objectives with optimum market conditions. Objectivity is the key. Be aware of the historical and current range of market multiples. If the historical range is 4.0-6.0X, don't fall into the trap of thinking "the market is hot and I might get 7.0X if I wait." In conclusion, coordinating the ecurve with a disciplined portfolio strategy will assist in maximizing the exit value of a business. This requires (1) developing an understanding of the e-curve dynamics, (2) assessing one's position on that curve, (3) adopting a disciplined portfolio strategy and starting to plan for the inevitability of the late maturity and transition/exit stages and (4) focusing on coordinating the location on the e-curve with an objective view of market conditions and the company's performance.

For owners currently approaching the maturation stage, market conditions-seem favorable right now. Merger and acquisition-activity and business valuations are showing signs of a strong rebound with valuations for smaller businesses at their highest levels since 2000. Similarly, overall M&A activity is the U.S. is at it highest level since 2000. Private equity firms are sitting on billions of dollars and many are actively seeking attractive deals in the restaurant sector. Considering the abundant signs of an economic rebound, now may be the best time in years to contemplate how the e-curve and a disciplined portfolio strategy apply to your present situation.

For more advice on exit strategies, contact the Cypress Group ( www.cypressgroup.biz ), which provides a full range of investment banking and strategic advisory services to the franchise and multiunit restaurant industry.

Lesson 9: Exit Strategy

Every journey comes to an end eventually. Whether you’ve run your restaurant for a year or 30 years, there will be a time when you will want to retire, sell or close your doors. This lesson will walk you through the different options when “closing time” finally rolls around.

Exit Strategy

Introduction.

In the business world, there are few guarantees. In the restaurant world, it’s even more of a dog-eat-dog world. Your unique concept may find new competition from others who want to copy and cash in on your brilliant idea. You may come to find that you can’t keep enough workers on your team to fill a shift, let alone two or three. Or you may find that developers are planning a new housing unit, and your restaurant is right in the middle of its planned lobby.

Turning the page can be a very emotional experience. It doesn’t matter if you’re a local institution celebrating its 25th anniversary or you opened your doors with big dreams a few months ago, and customers never had the chance to discover your amazing food.

In an ideal world, you built an exit strategy into your business plans. With proper planning, you can start a restaurant knowing that whatever happens, it will end up in good hands. Even if it doesn’t, you can at least walk away with some extra money in your pocket or leave knowing that its demise won’t affect you personally because you separated your business from your personal life. While you hoped for the best, you planned for the worst because that’s what smart business people do.

Let’s look at a restaurant and how two different exit strategies can affect the outcome…

A restaurant owner and his wife have been in business for 20 years. He works as the head cook, and she is the manager. The restaurant is popular with locals and is turning a profit. They finally decide to retire. They initially considered selling the restaurant, but there wasn’t much to sell outside of the name. They were the business, right down to the recipes that drew customers in nightly. So they decide to close when they retire. All the work they put into their business of 20 years ends with little to no fanfare.

Ten years into running the business, the same owner and his wife look at options for eventually leaving the restaurant business. To make the restaurant more attractive to buyers, they bring in another chef to learn the recipes and an assistant front-of-house manager to learn its ins and outs. Eventually, they added a couple more assistants to understand the business. A decade later, the business is ready to sell. The business is far more valuable because there is continuity in the menu and operations. The buyer has a turnkey operation that already has a loyal customer base and an established reputation. Because of this, one of the managers ends up buying the restaurant. The owners walk away with a tidy profit, and the legacy of their restaurant concept lives on.

Return to Main Office

    Introduction 1. Cottage Food Basics 2. The Business Plan 3. Pricing 4. Marketing 5. Food Booths 6. Food Trucks 7.  Pop-Ups 8.  Brick & Mortar 9. Exit Strategy

Developing a strategy

There are many strategies that don’t require you to close your doors forever or empty your personal bank accounts in an effort to keep the restaurant open at all costs.

Each strategy has implications for you and your business, including control of the intellectual property, capital gains taxes due, transfer of assets and whether or not you stay on for a time as a consultant in a staged transfer.

Even if you’re just starting out and are years away from facing these decisions about the future of your business, you want to consider your options while building your business plan. You just never know what the future holds.

As you consider various exit strategies in the next section, consider:

• The length of time you plan on being part of the business.
• The financial status of you and your business.
• Tax implications of various exit scenarios.
• Entities that may need to be compensated, such as investors and creditors.

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How to exit your restaurant franchise - strategies for success.

As a franchise restaurant owner, you have invested significant time, effort, and resources into owning and operating a successful business. While it is important to focus on growth and profitability, it is equally important to plan for the future and have an exit strategy in place for your restaurant franchise . 

Why you Need an Exit Strategy

Plan for the unexpected - One of the most important reasons to have an exit strategy is to plan for the unexpected. No matter how successful your restaurant franchise may be, there are always risks and uncertainties that could impact your business. This could include changes in the industry, economic downturns, or even personal circumstances such as health issues or family emergencies. For instance, a drastic life change may affect your ability to run the business profitably.

It is not unusual to experience lifestyle changes that can include growth in your family, caring for an aging parent, or experiencing an unforeseen health situation. Having an exit strategy in place ensures you are prepared to deal with these unforeseen events. Many Americans are currently struggling with the so-called " sandwich generation ", a scenario where they are dealing with both children on the one hand and the needs of aging parents on the other. A clear strategy allows for the investment you made in your restaurant franchise to create a capital event and fund your next steps if lifestyle needs dictate that you make a change in your own life.

Maximize your return on investment - Another key benefit of an exit strategy is to maximize your return on investment. Those long ago dollars invested should be part of your retirement plan, paying off to fund the future. Whether you sell your franchise externally or even sell it to family members, there may be unintended tax consequences to understand. An exit strategy for your restaurant franchise helps you minimize any tax liabilities and maximize your earnings.  A Certified Restaurant Broker can refer you to CPA's and accountants who specialize in tax events including the sale or gift of a business.

An exit strategy may not mean an immediate sale. It could be a consultation with a Certified Restaurant Broker that results in a plan to increase profits, implement cost-cutting measures, or even expand your restaurant franchise to new locations. Then, when you are ready to retire or begin divesting your portfolio, your units are ready to generate cash for your family. 

Maintain control of your business - Having an exit strategy helps you maintain control of your business. Without a plan, you could be forced to make hasty decisions or even sell your business at a lower price than you would like. An exit strategy helps you to sell when you want to , not when you have to.

Protect your legacy - For many franchise restaurant owners, their business is more than just a way to make money - it is a legacy that they want to pass on to future generations. Having an exit strategy in place for your restaurant franchise can help you protect that legacy and ensure that your business continues to thrive long after you are gone. This may include developing a succession plan, training your employees to take over key roles, or even passing on ownership of your franchise to family members.

How to Exit Your Food Franchise Business

The key to a successful exit is finding a trusted resource like We Sell Restaurants who has experience transferring franchise restaurants for sale in the marketplace. You need someone with experience selling many franchise restaurants that understands how to accurately value a restaurant business. In addition, they must be able to quantify the steps it takes to list, market, qualify a buyer, and ultimately transfer the unit. When working with a Certified Restaurant Broker® for example, you will be guided through 10 basic steps:

• Pull Data - Pull key items together including two years of tax returns, most recent P&L, POS reports, and more.
• Review Data - Read materials from Step 1 as if you are a buyer seeing them for the first time. Do your numbers match and make sense?
• Brainstorm - Think of ways that a new buyer could improve your business. Whether you sell or not, this step should identify areas for improvement.
• Know the Math - Restaurant valuation is a math problem with a right and wrong answer. Take time to understand the valuation process.
• Hire - I nterview restaurant brokers to find who can sell your restaurant for the most money in shortest time.
• Market - Attract buyers to your business with confidentiality, and qualify buyers before revealing details.
• Accept an Offer - After you receive a written offer and escrow check, review, counter, and make sure you know who is responsible for closing tasks.
• Complete Due Diligence - This is where buyers will dig into everything about your business. A strong restaurant broker will control this process and act as the conduit for info.
• Complete Approvals - After accepting an offer and completing Due Diligence, the buyer will need to be approved by the franchise brand.
• Close the Deal! Participate in weekly calls with the restaurant broker and buyer and close the deal!

Find Out If Your Brand has a Preferred Franchise Resale Resource

Research qualified restaurant brokers on your own in addition to asking your franchisor if they have a preferred resale specialist. We recommend trusting your franchise resale to specialist like We Sell Restaurants. We Sell Restaurants has partnered with several brands to provide restaurant franchisees the tools they need to transfer their unit and exit the business successfully. 

See brands we have sold

The best time to plan your exit strategy is from day one of the business acquisition. Connect with an franchise resale expert at We Sell Restaurants to learn more about exiting your franchise restaurant business successfully. 

Robin Gagnon, Certified Restaurant Broker®, MBA, CBI, CFE,  is the co-founder of We Sell Restaurants,  a brand that  has carved an unparalleled niche in the industry as the nation's leading and only business broker franchise focused on restaurants.  Under Robin’s leadership, We Sell Restaurants has grown to 45 states where it dominates the restaurant for sale marketplace, including franchise resales, delivering on the founder’s vision to  Sell More Restaurants Than Anyone Else . We Sell Restaurants was named one of the most influential suppliers and vendors in the country by Nation’s Restaurant News and has earned a position on INC 5000’s list of fastest growing privately held companies. Franchisees of We Sell Restaurants surveyed by Franchise Business Review placed it 25 th  in the nation in franchisee satisfaction.

Robin is the Chair of the Women’s Franchise Committee of IFA and is a member of the IFA Board of Directors. She is also an MBA and Certified Franchise Executive (CFE) and has her CBI (Certified Business Intermediary) designation from the International Business Brokers Association. She co-authored Appetite for Acquisition, a small business book award winner in 2012 and contributes frequently to industry press appearing in Forbes, QSR, Modern Restaurant Management, Franchise Update, and others. Entrepreneur has named her to their list of the “Top Influential Women in Franchising.”

Topics: Selling a Restaurant , Restaurant Franchise Resales

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Building a Restaurant Exit Strategy

Running your own restaurant is an exciting adventure, but whether you’re enjoying it or not, the harsh reality is that it’s bound to end at some point. You could be preparing for your retirement, moving on to other endeavours, or simply trying to cut your losses. Whatever the case, you’ll find it much easier to step away from your restaurant business if you have an exit strategy -long before you need it.

With a well-thought-out restaurant exit strategy, you can maximize the value of your business , attract more qualified buyers, and complete the sale process with the utmost ease and efficiency. You’ll face fewer headaches and minimize the chances of facing critical issues that could prevent you from selling your establishment.

Read on to find out the ins and outs of restaurant exit planning so you know how to develop a bulletproof exit strategy.

Exit Strategies for Restaurant Owners

Whether you’ve achieved your professional and personal goals with your restaurant and want to sell, or you’re no longer satisfied with being a business owner and want to move on to other things, there are several different options you could go for when you’re ready to exit the market.

Most restaurant owners choose to sell to a qualified buyer, liquidate the restaurant and all restaurant equipment , or merge/franchise. Take a closer look at each of these exit strategies below.

• Selling a Restaurant

If you no longer want to deal with all the nuances of running a restaurant and can’t wait to cash out simply, it makes the most sense for you to sell your restaurant for a fair price to a qualified buyer .

You could choose from a wide range of potential buyers. Depending on your specific exit plan, your buyer could be a family member. Many small restaurant owners, more interested in keeping the business in the family rather than getting any money out of it, simply transfer ownership to their children or loved ones.

Another excellent option for businesses is selling to employees. You could sell directly to one of your employees or opt for a management buyout. In either case, this can be beneficial as you’ll know who you’re leaving the business to.

It’s similar to when you transfer ownership to a family member. The benefit, however, is that you’ll likely get more money by selling to employees rather than loved ones.

Of course, you can also decide to go for independent buyers. In most instances, going this route will maximize your profits. The downside, however, is that finding an independent buyer can be a time-consuming, complicated process.

Whatever type of restaurant buyers you sell to, all business processes will likely continue as normal. Your restaurant would still be in business, most of your employees would be likely to keep their jobs, and it’s possible that the name and overall branding would remain the same – though you shouldn’t always count on it.

Liquidation

If you’re not interested in keeping your business operational and are more interested in getting money out of your restaurant quickly, you can opt for liquidation.

In a nutshell, liquidating your restaurant means putting everything on sale. You would be closing the doors of your business permanently, exiting the industry, and selling all assets, inventory, and equipment.

By “all,” we do mean all. You would sell everything your restaurant has, from kitchen appliances to furniture, dishes, utensils, and wall decor.

While liquidation is an emotional decision for most sellers, it has its merits. If your restaurant has yet to succeed, you have a lot of debt you need to pay, or you simply need money on hand right away, liquidation is your best course of action. You can exit the industry quickly and cash out.

The problem is that this exit strategy is generally the least lucrative. Liquidation is all about the quick sale, not about getting a high return on your investment. In most instances, you would need to sell all assets at a discount, so you won’t get as high of a pay as you would when going the traditional route and selling your business to new owners.

Merging or Franchising a Restaurant

Not all restaurant owners who are preparing their exit strategies want to exit the industry altogether and say goodbye to their businesses.

If you need help with your financial management, want to increase your cash flow, become more competitive, or find new growth opportunities instead of selling, you might want to merge with another owner or franchise.

Merging with other restaurant owners can take many different shapes and forms. You can keep some control over your business, keeping the same business model, for example, retaining your employees and more. However, you also have a different option.

If you want to ensure that you retain control over your business and brand, franchising might be a better solution. As a franchisor, you would sell the right to others to use your brand and intellectual property.

The downside of this exit strategy is that it’s only suitable for some restaurants. Only those restaurants that are big and successful already could be franchised. If you have poor revenue and are struggling with expenses, selling is a more realistic option.

What to Consider When Building a Restaurant Exit Strategy

Regardless of the specific exit strategy you decide to use, you must carefully prepare for it. Some of the things you’ll need to consider include timing, your books and records, transferability, and succession planning.

It’s always a good idea to get your timing just right, as that will ensure that the value of your restaurant is as high as possible. Unless you’re forced to sell when your business is struggling, you’ll want to start looking into selling only when it is at its peak.

When your revenue is stable, you have great relationships with your suppliers and a loyal customer base with plenty of new customers coming through your doors.

After all, most professionals avoid investing in failing businesses. Therefore, it’s in your best interest to first increase the value of your restaurant and then start looking for potential buyers .

Books and Records

To simplify all processes when you’re ready to exit the industry, you’ll want to ensure that all your books and records are well-kept from day one. Whether you’re selling, liquidating, franchising, or anything else, you’ll always want to have all your paperwork in order long before you follow through with your exit plan.

You’ll need your tax records, payroll information, and financial records if you hope to go through with your exit plan without any hiccups.

Transferability

Depending on your specific business model, transferability could potentially be problematic when you’re ready to leave the industry.

For instance, if you are not simply the owner of the restaurant but its main chef, transferring your business to another owner could be problematic as they would be losing access to the main asset – the chef responsible for attracting customers to the establishment.

Succession Planning

Of course, you’ll also want to start succession planning well in advance. Whichever route you go for—selling, franchising, or anything in between—the better idea you have of who will take over your business once you’re out of it, the easier it will be to prepare for your exit.

You’ll have many options, from family members to employees and independent buyers. Consider carefully all your choices and start preparing for your successor from day one.

The Importance of Building a Solid Exit Strategy for Your Restaurant Business

Proper exit planning doesn’t mean preparing for the “worst-case scenario.” It means preparing to leave your business at the best possible time. At a time when you’ve met your financial goals and established a business you’re proud of.

Thorough exit planning can increase the value of your restaurant and ensure that it’s left in good hands once you’re ready to move on to other things.

When is the best time to sell my restaurant?

While it’s always best to create your exit plan as soon as possible (even before you officially start in the industry), the best time to sell your restaurant is at its peak.

When your establishment is popular, has a large pool of loyal patrons, an experienced staff, all the necessary equipment, and a recognizable brand, you’ll get the best bang for your buck.

Moreover, you’ll be able to attract more qualified buyers as they can invest with the utmost confidence.

Is it better to sell or liquidate my restaurant?

Whether it’s better to sell your restaurant or liquidate depends on your unique situation and preferences. Selling is usually a long, time-consuming process that can get complicated. However, it will allow you to get the most money from your establishment.

Alternatively, liquidating can be a great choice for owners needing immediate cash access. Liquidations are quick and breezy, but the downside is that all your equipment and assets must be sold at a discount. Therefore, the overall value you’ll get will be reduced.

What are the benefits of having a restaurant exit strategy in Canada?

A restaurant exit strategy in Canada allows for business continuity, financial security, and peace of mind for restaurant owners. A well-crafted exit strategy reduces liability and ensures a smoother transition during the sale of the business.

What are the risks of needing a business exit strategy for restaurants?

Not having a business exit strategy poses significant risks for restaurant owners. Meeting personal and business goals becomes challenging without a plan, potentially reducing business value. Additionally, being mentally prepared to exit can help the smooth ownership transition.

How can I find qualified buyers for my restaurant?

Finding qualified buyers can be quite a hassle, even if your restaurant is at its peak. If you want to simplify finding buyers and selling your restaurant , your best course would be to list your restaurant on Find Businesses 4 Sale.

Find Businesses 4 Sale is a growing marketplace where owners of businesses across industries can easily get in touch with qualified buyers, brokers, and franchisors and make a sale without any obstacles.

https://www.businesstransitionacademy.com/maximizing-the-value-of-your-business-before-selling

https://eatsbroker.com/exit-planning-for-restaurant-owners/

https://www.restaurant-hospitality.com/staffing/smart-exit-strategy-your-restaurant-business

https://hiltonsmythe.com/exit-strategies-for-cafes-and-restaurants/

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Having an Exit Strategy for Your Restaurant

Updated: Oct 12, 2019

Having an exit strategy for your restaurant is important whether you have a successful business or not.

Anything can happen and you have to get out. Put an exit plan in place before it is needed.

Be proactive, not reactive. Don't be led by emotions when the time comes.

Last week, we saw a restaurant for sale. The owner couldn't make enough money to cover the basic expenses - bills, mortgage, utilities, etc.

Desperate to get out of debt and sell the place, she dropped the price from $50K to $30K.

Her downfall ... no plan for success and no exit strategy in place. Here are a few thoughts to keep in mind when creating an exit strategy for your business:

* How are we going to maximize what we can charge for it? What would be of value to the potential buyer?

The most valuable thing you have to offer is your database of customers. They are the livelihood of your business.

Keep it a warm market!

It is beneficial to the buyer and allows you to ask more for the business.

* The best defense is a good offense!

Training, good management and checklists are a must.

Our applicants go through several interviews to make sure they are a good fit for our business. When hired, they must go through extensive training to ensure they can successfully handle the position assigned to them.

Training is always ongoing; learning is constant.

Daily checklists are used to guide the employees to make sure they are properly handling the tasks assigned to them.

We have spend hundreds of hours creating this and putting it all into place, ensuring a successful business.

* Have your finances in order!

We can't say enough about this. Use a reliable company to handle your payroll, so that the proper taxes are being taken out and Uncle Sam has his share.

Keep a proper filing system for bills and be sure they are always paid in a timely manner.

Record everything paid and received. Expenses must be covered before considering improvements.

* Work diligently t o have procedures in place

So you can hand the business over to your management team and step away.

Train them to handle all kinds of situations without relying on you all the time. Create video training sessions to be reviewed as needed.

The business should be able to run successfully without your presence, allowing you to handle other pressing matters...social media, marketing, etc.

Having a good foundation makes for a stronger building!

* Understand that you are in control of your selling price.

Your gross sales determine your asking price.

The better the sales, the more money you can ask from the buyer. Again, be proactive, plan what you want your business to be worth and set short and long term goals to reach this.

Always strive to improve and never be satisfied with what you have.

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Exit Strategy 101: A Comprehensive Guide to Creating a Solid Plan for Your Business

Sep 3, 2023

Are you a business owner looking to make a graceful exit from your company? Whether you’re planning to retire, cash in on your hard work, or move on to new ventures, having a solid exit strategy is crucial for a successful transition. In this comprehensive guide, we will walk you through the essential steps to creating a robust plan that aligns with your business goals.

From determining the right time to exit to understanding the various exit options available, this article covers it all. We will delve into key aspects such as valuation, legal considerations, finding the right buyer or successor, and the importance of proper documentation.

With practical advice and expert insights, you’ll gain a clear understanding of the exit process and the factors that can impact your ultimate success.

Whether you’re a small business owner or an entrepreneur with a thriving startup, having a well-thought-out exit strategy is vital for ensuring a smooth transition and maximizing the value of your hard work. So, let’s dive in and start planning your exit strategy today.

Why every business needs an exit strategy

An exit strategy is a well-thought-out plan that outlines how a business owner intends to leave their company while maximizing its value. It serves as a roadmap for a successful transition and ensures that the owner’s hard work is not in vain. Having an exit strategy is not only important for retirement planning but also provides a contingency plan in case of unforeseen circumstances such as health issues or changes in the market.

Creating an exit strategy allows business owners to maintain control over the process and make informed decisions about their future. It provides stability and reassurance to employees, customers, and investors, ensuring a smooth transition that minimizes disruption to the business’s operations. Without a clear plan, the value of the business may diminish, and the owner may have to settle for less than optimal terms.

Understanding exit strategies: types and options

There are several types of exit strategies available to business owners, each with its own advantages and considerations. The most common exit strategies include selling the business, transferring ownership to a family member or employee, merging with another company, or taking the business public through an initial public offering (IPO). Each option has its own unique benefits and challenges, and the choice depends on various factors such as the owner’s goals, the business’s financial health, and market conditions.

Selling the business is often the preferred exit strategy for many business owners. It provides an opportunity to cash in on their hard work and transfer the business to a new owner who can take it to the next level.

This option requires careful planning, valuation, and finding the right buyer who shares the same vision for the business. On the other hand, transferring ownership to a family member or key employee can be a rewarding option that ensures the business’s legacy continues. However, it requires careful consideration of the successor’s capabilities and the legal and financial implications involved.

Merging with another company is another exit strategy that can lead to synergies and growth opportunities. This option allows business owners to combine resources, expand market reach, and benefit from economies of scale. However, it requires thorough due diligence and negotiations to ensure a successful merger. Finally, taking the business public through an IPO can provide significant financial gains and liquidity. However, it is a complex process that involves regulatory requirements, increased scrutiny, and ongoing obligations to shareholders.

The importance of timing in creating an exit strategy

Timing is a critical factor when it comes to creating an exit strategy. The right timing can significantly impact the value of the business and the success of the transition. It is essential to consider both internal and external factors when determining the optimal time to exit.

Internally, the business’s financial performance, growth prospects, and market position play a significant role in determining the timing. A business with a strong track record, solid profitability, and growth potential is likely to attract more buyers and command a higher valuation. It is important to have accurate financial records and projections that reflect the true value of the business.

Externally, market conditions, industry trends, and economic factors also influence the timing of an exit. It is crucial to monitor the market and identify favorable conditions that can maximize the value of the business. Waiting too long or exiting during a downturn can have a negative impact on the business’s value. Additionally, changes in the regulatory landscape or industry disruptors can also affect the timing of an exit.

Factors to consider when developing your exit strategy

Developing a successful exit strategy requires careful consideration of various factors that can influence the outcome. These factors include the business’s financial health, market conditions, legal considerations, and the owner’s personal goals and timeline.

Firstly, it is crucial to assess the financial health of the business. This involves conducting a thorough valuation to determine its fair market value. A professional valuation can provide an objective assessment of the business’s worth, taking into account its assets, liabilities, cash flow, growth potential, and market comparables. This information is vital for setting realistic expectations and negotiating a fair deal.

Secondly, market conditions and industry trends should be analyzed to identify the best time to exit. Understanding the market dynamics, competitive landscape, and customer preferences can help position the business for maximum value. Conducting market research and staying up to date with industry news and trends can provide valuable insights.

Legal considerations are also crucial when developing an exit strategy. It is essential to consult with legal professionals who specialize in business transactions to ensure compliance with regulatory requirements and protect the owner’s interests. This includes reviewing contracts, agreements, licenses, permits, and any potential legal liabilities that may impact the exit process.

Lastly, the owner’s personal goals and timeline should be taken into account. Different exit strategies have different timeframes and implications. Retirement planning, financial goals, and lifestyle considerations should all be considered when developing the exit strategy. It is essential to align the exit plan with the owner’s desired outcome and ensure a smooth transition.

Building value in your business for a successful exit

Building value in your business is crucial for a successful exit. A business that is attractive to potential buyers or successors is more likely to command a higher valuation and generate interest. Here are some strategies to consider:

1. Focus on profitability

Maximizing profitability is key to increasing the value of your business. Implement strategies to improve operational efficiency, reduce costs, and increase revenue. This can be achieved through streamlining processes, investing in technology, and diversifying revenue streams.

2. Build a strong management team

Having a competent and capable management team in place is essential for a successful transition. This demonstrates to potential buyers or successors that the business can continue to operate effectively without the owner’s direct involvement. Develop and nurture talent within your organization and delegate responsibilities to key employees.

3. Diversify your customer base

Relying too heavily on a single customer or a small group of customers can pose a risk to the business’s value. By diversifying your customer base, you reduce the dependency on any one customer and make the business more attractive to potential buyers or successors.

4. Develop a strong brand and reputation

A strong brand and reputation can significantly enhance the value of your business. Invest in marketing and public relations to build brand awareness, customer loyalty, and industry recognition. A positive reputation can differentiate your business from competitors and attract potential buyers or successors.

Exit strategy examples from successful businesses

Looking at exit strategy examples from successful businesses can provide valuable insights and inspiration for creating your own plan. Let’s take a look at a few examples:

1. Facebook’s acquisition of Instagram

In 2012, Instagram, a popular photo-sharing app, was acquired by Facebook for $1 billion. This exit strategy allowed Instagram’s founders to cash in on their hard work while leveraging Facebook’s resources and user base for further growth.

2. AppDynamics’ IPO

AppDynamics, a software company specializing in application performance management, went public in 2017. The company’s successful IPO provided significant financial gains and liquidity for its shareholders, while enabling the business to continue its growth trajectory.

3. Ben & Jerry’s sale to Unilever

Ben & Jerry’s, a well-known ice cream brand, was sold to Unilever in 2000. This strategic acquisition allowed Ben & Jerry’s founders to exit the business while ensuring the brand’s continued success under Unilever’s ownership. These examples highlight the importance of planning, timing, and finding the right strategic partner for a successful exit.

Steps to create your exit strategy

Creating a solid exit strategy involves several key steps that need to be carefully planned and executed. Here is a step-by-step guide to help you create your exit strategy:

1. Define your goals

Determine what you want to achieve through your exit strategy. Are you looking to maximize financial gains, ensure the business’s legacy, or pursue new ventures? Clarifying your goals will help guide your decision-making process.

2. Assess your business’s value

Conduct a thorough valuation of your business to determine its fair market value. This will provide a baseline for setting realistic expectations and negotiating a fair deal.

3. Research and evaluate exit options

Explore the various exit options available and assess their suitability for your business. Consider the advantages, challenges, and implications of each option, and determine which aligns best with your goals.

4. Prepare your business for sale

Take steps to enhance the value of your business by focusing on profitability, building a strong management team, diversifying your customer base, and developing a strong brand and reputation.

5. Seek professional advice

Engage with professionals such as accountants, lawyers, and business brokers who specialize in exit strategies. Work with a Value Growth Advisor to help you focus on creating a more valuable business. They can provide expert guidance, conduct due diligence, and help navigate the complex legal and financial aspects of the process.

6. Develop a transition plan

Create a detailed transition plan that outlines the steps, timeline, and responsibilities for the exit process. This will ensure a smooth transition and minimize disruption to the business’s operations.

7. Execute your exit strategy

Once all the necessary preparations are in place, execute your exit strategy according to your transition plan. Stay focused, remain flexible, and be prepared to adapt to changing circumstances.

Common pitfalls to avoid when creating an exit strategy

Creating an exit strategy can be a complex and challenging process. Here are some common pitfalls to avoid:

1. Lack of planning

Failing to plan in advance can lead to rushed decisions, missed opportunities, and reduced value for your business. Start planning early and give yourself enough time to execute your exit strategy successfully.

2. Overvaluing your business

Having unrealistic expectations about the value of your business can hinder the exit process. Conduct a thorough valuation and rely on professional advice to determine a fair market value.

3. Neglecting legal and financial considerations

Failing to address legal and financial aspects can lead to costly mistakes and legal disputes. Consult with professionals to ensure compliance and protect your interests.

4. Not considering alternative exit options

It’s important to explore and evaluate different exit options . Don’t limit yourself to a single strategy; consider all possibilities and choose the one that best aligns with your goals.

5. Ignoring market conditions

Timing is crucial when it comes to exiting your business. Stay informed about market conditions and industry trends to identify the optimal time to exit.

Seeking professional advice for your exit strategy

Creating a solid exit strategy requires expertise and knowledge in various areas, including finance, law, and business transactions. It is highly recommended to seek professional advice from experts who specialize in exit strategies.

These professionals can provide invaluable guidance, conduct due diligence, and help navigate the complex legal and financial aspects of the process. They will ensure that your interests are protected, and you can achieve your desired outcome.

Taking the next steps towards a successful exit

When it comes to creating an exit strategy, seeking professional advice is paramount. The expertise of financial advisors, lawyers, and business consultants can help you navigate the complexities of the process, ensuring you make informed decisions that maximize your return on investment.

One of the first steps in creating an exit strategy is determining the value of your business. A professional valuation will provide you with an accurate assessment of the worth of your company, taking into account factors such as assets, cash flow, intellectual property, and market conditions. This valuation is crucial in determining a fair asking price when it comes time to sell or transfer ownership.

Take our Free Value Builder Assessment and get your business value now!

Legal Considerations:

Navigating the legal aspects of exiting your business can be overwhelming without the guidance of a qualified attorney. From reviewing contracts and agreements to understanding tax implications, a lawyer specializing in business transactions can ensure that you are in compliance with all legal requirements and help protect your interests throughout the process.

Finding the Right Buyer or Successor:

Identifying the right buyer or successor for your business is a critical aspect of a successful exit strategy. Whether you’re looking to sell to a competitor, pass the torch to a family member, or bring in a partner, it’s important to take the time to find someone who not only has the financial means to take over but also shares your vision and values. Engaging the services of a business broker or intermediary can greatly simplify the process of connecting with potential buyers or successors and negotiating a deal that works for both parties.

Importance of Proper Documentation:

Proper documentation is essential in ensuring a smooth transition during the exit process. This includes having up-to-date financial statements, contracts, employee agreements, and other legal documents readily available. It’s also crucial to document any intellectual property, patents, or trademarks associated with your business. Having all the necessary paperwork in order will not only streamline the exit process but also instill confidence in potential buyers or successors.

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