Defining a Business Exit Strategy in Today's Market
A business exit strategy is a comprehensive plan to relinquish and shift ownership to a new group, company, or investor. While every business is unique, strategic exit planning generally occurs when an owner is preparing to monetize years of dedication and hard work. In the case of self-storage, working to maximize the value of an asset is key to a successful exit strategy. Once the financial returns on a property yield a certain threshold or worth, an owner will often capitalize on a sale and exit the business.
Moreover, a well-planned business exit strategy is typically based on specific goals set by an owner. The end goals serve as the baseline for a successful exit strategy, allowing for a clear vision and ultimate peace-of-mind once the business is turned over to new ownership.
Why Should Commercial Real Estate Owners Have an Exit Strategy?
There are several critical reasons for self-storage owners to build out a strategic exit strategy for their business. Having a detailed exit plan will allow owners to eliminate risk, diversify net worth, and subsequently grow net worth. Additionally, a successful exit will allow many hard-working business owners to enjoy retirement or time with family. Relinquishing control and capitalizing on a premium return opens up several opportunities for personal and financial growth.
De-risking is a major benefit that will come with a strategic exit strategy. Due to fluctuation in the commercial real estate market, owners are consistently navigating ebbs and flows. There is a constant level of risk as the market can dictate the value of an asset; many factors are outside of each owner’s individual control. With a solid exit strategy, owners can work towards a successful disposition, allowing for a smooth transition at an ideal price point. Eliminating risk after a business exit can alleviate a tremendous amount of stress that can result from external market conditions.
Owners will have a unique opportunity to diversify and grow their net worth with a proper exit strategy. Over time, a self-storage facility or portfolio will only grow so much financially. The reality is that a growth cap exists for every asset. With a strategic exit strategy and realistic goals, a successful disposition will allow an investor to enter other financial investment opportunities in multiple markets. Relocating capital in new ventures can be extremely gratifying, allowing for diversification. An investor can spread wealth across multiple platforms if an exit strategy yields maximum results. With this route, the burden of relying on a single asset for financial gain is essentially relinquished.
Moreover, a robust exit strategy will yield hard-working owners an invaluable amount of time to rekindle with family and friends, in addition to pursuing other personal ventures that would otherwise be unfeasible financially or would require too much time away from operating a self-storage facility. The personal freedom that would come from a successful exit strategy cannot be overlooked.
What are the Options for a Business Exit Strategy?
Storage owners have a few options to consider when building a specific exit strategy. The options are to fully exit the business or plan for a partial exit through a joint venture. A full sale will clearly allow for an owner to relinquish all aspects of the business and make a complete exit, while a partial exit would involve a new partnership in the business to help bolster the asset while reducing overall responsibilities for the individual owner. Ultimately, a partial exit frees up a significant amount of time but still allows an investor to maintain some level of responsibility.
As mentioned, with the full sale of a property, the owner will benefit from eliminating all risk associated with the property. It’s important to note that liquidity is often overlooked; diversified holdings are much more liquid. A partial exit offers the path to be a more passive figure in the business, while a full exit at the right time offers the most stable hedge.
How Can Owners Determine the Best Plan for Their Business, Family, and Themselves?
Owners can secure the financial outlook for their families by surrounding themselves with a core group of trusted experts, advisors, and key staff members that share and value the owner’s precise vision for success. This includes maintaining a great management team, expert advisors, lawyers, CPAs and financial strategists, among several other valuable resources that prioritize the best interest of the ownership group. A team of trusted experts is foundational, especially when the time comes to formulate a viable exit strategy.
Surrounding yourself with the best professionals to help craft an exit plan is key. In addition, it is critical for the owner to conduct their own due diligence and speak with other successful business contacts who have paved the way for smooth transitions. Storage owners should actively be connecting with these professionals to gauge their transition experiences, to recognize the pros and cons of relinquishing control, and to take away the important lessons learned. Ultimately, each investor needs to do what they feel passionate about, so it’s important to evaluate your own position internally and figure out what could be next after storage. This includes relocation, selling the business to secure family members financially, or reinvesting and diversifying, among other desirable options.
Closing Remarks | Additional Advice
Making the decision to sell an asset is truly a unique process; this is something that owners need to brace for when deciding to relinquish control and capitalize on their facility. Owners planning to sell need to go into it knowing that the disposition process is totally different from buying or building a property. There simply needs to be a realistic outlook; the owner will be walking away from a business that they’ve built. The adjustment of being on the outside looking in for the first time in years can be difficult, but it is a key mindset to start acclimating to well ahead of the sale.