Do I need a written exit plan, or is a rough idea enough?

Nothing in the sources we checked obliges an owner to put an exit plan on paper. The question is whether a rough idea can do the work a plan has to do. BDC’s guide to selling says planning for the sale well in advance makes a big difference, whether the goal is a comfortable retirement, maintaining the company’s legacy or staying involved in the business somehow. A rough idea is hard to check against any of those goals, because it has no dates and no list of what must be ready.

What the sources say about late planning

BDC’s advisors say many people wait too long before starting to plan the sale and then sell at a time that is not ideal, and that many underestimate how long it takes to prepare a business for sale. CFIB’s succession research says poorly managed ownership transitions may result in a premature sale that does not receive the full value of the business, as well as closures and job losses. Both are warnings about timing, and a timeline is something a written plan can hold.

What writing it down lets you test

BDC says your reasons for selling will likely influence your goals, and that being clear on your goals helps you take the appropriate steps to structure and prepare for the transaction. It also lists questions to ask in preparing: are my financials in order, do I have a plan for the business, how is my business doing, and do I have legal or regulatory issues that need addressing. Written answers, with a date beside each, can be reviewed by your accountant, lawyer and any exit planning advisor. BDC also says a chartered business valuator’s report gives a baseline for the discussion.

Where a short plan is a start

A page recording your goal, a target window, who you would want as a buyer, the advisors you will use and your answers to those questions is a place to begin, and you can add detail as the date nears. What a succession plan actually contains describes a fuller version. How much detail your situation needs is a question for your advisors.