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  • Service: Enterprise, Family business
  • Type: Business and industry issue
  • Date: 5/22/2013

Why exit strategies fail 

Why exit strategies fail
Fail to plan and plan to fail. It’s a much-quoted business maxim. And, while an entrepreneur may plan every aspect of their business down to the finest detail, many still neglect to plan how they’ll quit the business one day and are disappointed when they find their departure does not turn out as they’d hoped.

Assuming you wish to reap the rewards of years of hard work and get maximum value out of your business, it’s useful to know something about why exit strategies don’t always work out…


A lack of forward-thinking

Not having an exit strategy is a strategy…but a poor one. Not thinking about how and when you’ll transition out of the family business is the fastest way not to get what you want or expect after decades of hard work.


Alas, says the Australian Research Council, 75% of family business owners do not have an exit strategy. Unfortunately, leaving the business on a whim will rarely provide the owner with the same results as a well-considered exit plan committed to paper in good time.


A lack of knowledge

‘Fail, pass down or sell?’ asks Fortune Magazine of business owners. Those are all valid ways for a business owner to exit his or her company, but there are more.


Many entrepreneurs fail to plan adequately for their exit from their business simply because they’re unaware of the exit options open to them and lack decent knowledge of succession planning. Speak to a consultant and talk through the why’s and wherefores of various exit options before settling on one which works for your unique scenario.

A lack of preparation

You’ve got your heart set on selling your company. Great exit strategy…in theory. If this is how you plan to offload your business, do ensure that you have all your ducks in a row – a lack of proper planning can not only set back a sale by many months but sink it all together.


Serious prospective buyers will want to thoroughly examine every aspect of your business before they sign on the dotted line and they’re perfectly entitled to – it’s due diligence. To facilitate the sale and make the best impression, there should be no irregularities in your books (and if there are, you should be able to provide a really good, plausible reason for it) and you should be able to provide at least three years’ worth of financial information and all statements need to be properly prepared.


In addition, make sure that your physical premises are spick and span when buyers come to visit, that all your legal paperwork is in order and that you can provide potential buyers with a bona fide reason for selling.

Overvaluing the business

Building up a business from scratch is not only hard toil but requires considerable emotional investment as well. This emotional attachment which business owners form with their business can sometimes cloud their judgment – they may feel that their business is worth more than it actually is.


When they finally decide to part ways with their ‘baby’, they find out – to their horror – that it won’t fetch the price they’d anticipated. When planning your exit, always ensure you bring in an objective, independent professional to properly evaluate your business so that you have a clear and realistic sum with which to work. And remember to do such valuations at regular intervals to ensure that the figures you’re with which you’re working are current.

They’re inflexible

Just like you need to keep up to date with your business’s valuations, so too do you need to ensure that you revisit your exit strategy at regular intervals. The times, they are changing; an exit strategy conceived ten, five or even two years ago may no longer be relevant or realistic.


When outlining an exit strategy, make it firm enough to give you a clear indication of and direction to your end goal but dynamic enough to adjust to the prevailing economic, socio-political and business climate and to take advantage of unexpected opportunities which may present themselves along the way.


What reasons have you seen in business for the failure of exit strategies?

Christophe Bernard

Christophe Bernard
I am a KPMG partner based in the French firm’s Paris office, responsible for encouraging the growth of our firms’ middle markets practice across Europe, Middle East and Africa, a majority of that market comprises of family businesses.
 

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