Many people think exit planning is an exercise a business owner goes through when it is time to sell the business. In fact, it is actually a philosophy or mentality about how to operate the business at all times. Exit planning is a process that prepares the business and everyone affected by it to always be ready for the unexpected. It is essentially a protection plan for contingencies such as the owner getting hit by the proverbial bus or other events like an unsolicited offer to purchase the business, divorce, disagreements among shareholders, disgruntled employees, disease, death, disability, litigation, etc..
Exit planning is also the process of reducing risk and improving the attractiveness of the business. Risk factors may be internal or external. An internal risk may be having a concentration of sales in one or a few customers or relying on one or a few suppliers when the supply chain can be vulnerable. An external risk may be something beyond our control, such as the COVID-19 pandemic. However, by having the right systems, policies, people, and procedures in place, along with a rainy-day fund, the effects of most events can be mitigated.
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