Small Business: Plan your exit strategy from the beginning

Entrepreneurs can spend so much time setting up a company that they forget to plan for the future

The setting-up period is, however, the best time to plan such things through, according to the experts. John Ahern, who established Go2Mobile in 1998 with a business partner who subsequently left it, agrees. So much so that he has started his latest business with an eye on the door — for everyone.

“Having been through the process once, I knew when establishing thebusinessshop.ie that it was vital to have a clear exit strategy, particularly when there are other business partners involved,” said Ahern. “It focuses business growth and ensures all of the directors are pursuing the same goals.”

His new venture is an online business sales company, and Ahern and his current partners have an exit strategy incorporated into their business plan.

“We also see through the website that many second generation businesses, particularly in retail, are sold because the children of the original owners want to work ‘normal’ hours,” said Ahern.

“This usually happens where siblings have taken over the business and have quite different ideas about the future direction of the company.”

The situation is eased where a clear exit strategy has been identified from early on, he said.

There is a high failure rate for businesses passed onto family members, according to Tony Carey of Cooney Carey accountants.

What differentiates family succession from selling is that it doesn’t always involve a lump sum being paid for the firm. Instead a “salary” is often paid to the vendor well after their effective retirement.

Among the things to consider with succession is the need to be honest in assessing the skills needed to run the business and those available in the family, said Carey.

Consensus should be sought from within the family and expectations managed in order to avoid potential conflict. Ultimately, a thorough and legally binding agreement should be drawn up to avoid misunderstandings.

The original owner should decide what their role will be after the takeover. “It should be one of structured guidance rather than interference,” he said.

About 80 businesses are started in Ireland each day, and though few have selling up on their mind, there’s a strong argument to be made for spelling out your exit strategy in your original business plan.

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