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How to Write a Business Exit Plan

Create a profitable plan from the start

All good business planning documents have a clear business exit plan that outlines your most likely exit strategy from day one.

It may seem odd to develop a business exit plan this soon, to anticipate the day you'll leave your business, but potential investors will want to know your long-term plans. Your exit plans need to be clear in your mind because they will dictate how you operate the company.

For example, if you plan to get listed on the stock market, you’ll want to follow certain accounting regulations from day one that'd otherwise be non-essential and potentially cost prohibitive if your ambitions are to quickly sell the company to a more established competitor in your industry. If you plan to pass the business to your children, you’ll need to start training them at a certain point and get them invested in the company from an early age.

Here’s a look at some of the available strategies for entrepreneurs who want to build a business exit plan into their early planning process:

Long-Term Involvement

  • Let It Run Dry: This can work especially well in small businesses like sole proprietorships . In the years before you plan to exit, increase your personal salary and pay yourself bonuses. Make sure you are on track to settle any remaining debt, and then you can simply close the doors and liquidate any remaining assets. With the larger income, naturally, comes a larger tax liability, but this business exit plan is one of the easiest to execute.
  • Sell Your Shares: This works particularly well in partnerships such as law and medical practices. When you are ready to retire, you can sell your equity to the existing partners, or to a new employee who is eligible for partnership. You leave the firm cleanly, plus you gain the earnings from the sale.
  • Liquidate: Sell everything at market value and use the revenue to pay off any remaining debt. It is a simple approach, but also likely to reap the least revenue as a business exit plan. Since you are simply matching your assets with buyers, you probably will be eager to sell and therefore at a disadvantage when negotiating.

Short-Term Involvement

  • Go Public: The dot-com boom and bust reminded everyone of the potential hazards of the stock market. While you may be sitting on the next Google, IPOs take much time to prepare and can cost anywhere from several hundred thousand to several million dollars, depending on the exchange and the size of the offering. However, the costs can often be covered by intermediate funding rounds. Keep in mind, that the likelihood of your company ever going public is very low, as you'll likely need to reach into the tens of millions of dollars in annual revenue before you're an attractive IPO candidate.
  • Merge: Sometimes, two businesses can create more value as one company. If you believe such an opportunity exists for your firm as a business exit plan, then a merger may be your ticket. If you’re looking to leave entirely, then the merger would likely call for the head of the other involved company to stay on and take over your company's activities. If you don’t want to relinquish all involvement, consider staying on in an advisory role.
  • Be Acquired: Other companies might want to acquire your business and keep its value for themselves. Make sure the offered sale price meshes with your business valuation. You may even seek to cultivate potential acquirers by courting companies you think would benefit from such a deal. If you choose your acquirer wisely, the value of your business can far exceed what you might otherwise earn in a sale.
  • Sell: Selling outright can also allow for an easy exit. If you wish, you can take the money from the sale and sever yourself from the company. You may also negotiate for equity in the buying company, allowing you to earn dividends afterward — it is in your interest to ensure your firm is a good fit for the buyer and therefore more likely to prosper.

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Business Exit Strategy Planning

Written by Dave Lavinsky

Growthink.com Exit Strategy Planning

This guide to planning your exit strategy is the result of Growthink’s 20+ years of experience helping companies develop successful exit plans.

The guide starts by explaining what a business exit strategy is. It then explains the types of exit strategies available to your business.

It then discusses the key takeaways to successful exit strategy planning. In this section, we spend a significant amount of time going through the 20 ways to maximize the value of your company to realize a successful exit.

Finally, this guide provides helpful tips regarding how to create an exit strategy business plan for your organization.

What is a Business Exit Strategy?

A business exit strategy is a plan that an owner or executive creates and follows to liquidate their stake in a business, ideally at a substantial profit.

A successful business exit strategy requires careful planning and should be periodically revised to best reflect the current business conditions.

Types of Common Exit Strategies

To ultimately build an effective exit plan it’s important to understand the ways you can exit a business and which type of exit aligns with your business goals and values.

For example, if your end goal is generating money and personal wealth, then selling your business to a competitor or a private equity group might be a viable exit plan. However, if you are more attached to your business’ legacy and wish to see it operational even after your exit, then selling to current skilled employees or family member succession planning might be business exit strategies worth exploring.

Below are the six core types of exit strategies, organized into two core categories: Selling Your Business and Other Business Exit Strategies.

Selling Your Business

There are three main audiences to consider when selling your business: another business, a financial group, and employees. When evaluating the sale, gauge the attractiveness of your business from the perspective of potential buyers or other investors.

A solid reputation, customer base, and track record of growth are some factors that make a business appealing to buyers. Other factors could include strong cash flow, patented intellectual property, or niche expertise. Note that these factors are discussed in the “Keys to Successful Exit Strategy Planning” section later in this guide.

Another Business (or a Strategic Buyer) : Businesses acquire other businesses for a variety of reasons. From a buyer’s perspective, a strategic acquisition is often the quickest way to grow and/or diversify a business. It is also a surefire way to eliminate competition. For these reasons, valuations in strategic acquisitions are often highest. The drawback to this path is that most companies do not have an active mandate to acquire another business. A business owner may first need to be convinced of the idea of an acquisition exit strategy generally before entertaining the specific opportunity to purchase your business. He or she may then need to obtain financing to complete a transaction. Both of these elements can slow your exit process.

Therefore, when exploring this path it is important to plan ahead and identify firms that could be potential acquirers by keeping up with transaction activity in the same industry. Keep a lookout for firms that are actively buying other businesses and position your business in a way that appeals most to them. This will maximize your chances of receiving an enviable acquisition offer from a larger business that is prepared to buy.

Financial Buyer : A financial buyer refers to an individual or group, like a private equity firm, who is primarily interested in the cash flows your business can generate post-acquisition. Financial buyers’ sole activity is the buying and selling of businesses, so these buyers are prepared to efficiently and effectively evaluate a business and have capital in place to quickly execute a transaction. Given their valuation approach and goal of future cash flows, financial buyers are typically looking for relatively high historical operating profits ($3 million at a minimum). Typically private equity groups value a company based largely, if not exclusively, on a multiple of past operating profits. These multiples may or may not take into consideration the growth opportunities you see for your business and so you may not see the same valuation as a strategic buyer.

Your Employees : Selling the business to employees is another business exit strategy to consider. The advantage of this employee or management buyout strategy is that you are transitioning to people who are well-versed in the business and have a vested interest to see it thrive. If you are structured as a corporation, you can create an Employee Stock Option Plan (ESOP), which allows employees to vest ownership in your business. When you are ready to exit, the larger business then purchases your shares from you and redistributes them to the remaining employees. A similar option is establishing a worker-owned cooperative. In this scenario, employees invest personal capital into shares of the cooperative. For this to work, it is essential that you foster a participatory culture in your organization and be mentally prepared to stay on until the transition is complete.

Other Business Exit Strategies

If you do not plan to sell your business, the following are other exit strategies to consider.

Family Succession : This business exit strategy involves transferring the mantle of leadership to the next generation in your family. This common exit strategy is popular with owners who wish to see their legacy continue. The advantages of family succession include the ability to choose a successor of your choice and groom them. It also allows for the sole business owner to remain involved. The success of this exit strategy often hinges on the personal attributes and professional skills of the new successor. Their commitment to the family business and the quality of their relationships with other employees are also critical factors.

Asset Sale : This business exit strategy involves shutting down the entire business and selling some or all its assets. For this exit strategy to be profitable the business needs to have certain value-adding assets it can sell, such as land, building(s), or equipment.

Compared to a stock sale, asset sales typically involve limited negotiations. You also do not have to worry about the transfer and transition of the business ownership. The negative obviously is the loss of the business you built.

Taking Your Business Public : Another company exit strategy you may consider is an Initial Public Offering (IPO). We mention this last since it’s only relevant to a tiny portion of companies. An IPO involves selling your business in public markets like the New York Stock Exchange (NYSE). IPOs receive wide media coverage but are not very common. This is because they are very expensive and laborious to undertake. Every IPO requires thorough financial, operational, and staffing reports among others which can be very costly to produce. Incurring such costs is not feasible for small to medium-sized businesses; hence this exit strategy is not practical for many organizations. If you do manage an IPO then the pros are instant popularity as IPOs are usually quite a hyped event. You might even get lucky and have your business valued highly on the stock market leading to your stock value appreciating exponentially.

What’s the Best Exit Strategy?

There is no single best or preferred exit strategy. The ideal choice for your business depends on your unique circumstances.

Your Business Goals : You need to assess how ready you are to give up control of the business and when you want to exit. This is a personal decision but consider this: if you have been running the business solo or with a very small team, then an initial public offering (IPO) or selling to a larger business may not be the best option.

Your Business Size and Structure : Another key consideration is your company size and structure. If you are a small business, then an asset sale or family member succession might be the more feasible option for you. On the other hand, if you are a corporation with tens or hundreds of employees, then going public is a more viable option.

Your Business Age and Stage : The next thing you need to consider is your company’s age and stage. If your business is young and growing, then you might want to consider an IPO as your exit strategy. However, if your business is in its maturity stage or even in decline, then an asset sale or family succession might be more suitable.

The Bottom Line

No one can tell you what the best exit strategy is for your business. The key is to weigh all the options and make a decision that aligns with your personal and professional goals for a successful future.

Keys to Successful Exit Strategy Planning

The key to successful business exit planning involves just two steps: 1) determining how strategic or financial buyers will value your business, and 2) maximizing that value.

Determining How Your Business Will/Might Be Valued

As discussed above, if you seek a financial buyer, they will value your business based on your company’s financials, cash flow, and future growth prospects.

Strategic buyers, which nearly always pay more money than financial buyers, and thus should generally be your focus, will value your business differently.

The best way to identify how they will value your business is to:

  • Research acquisitions in your market (via trade journals, Google searches, etc.)
  • Determine exactly what metrics will you be primarily valued on? Ideally in your searches, you will see what attributes were mentioned in articles discussing the acquisitions. Did they mention the acquired company’s revenues, # of subscribers/customers, market share, EBITDA? Whatever metrics are mentioned will be key-value drives.
  • Identify factors multiple strategic buyers would value, such as new products, a distribution network, intellectual property (IP), unique location(s), financial savings, better systems/processes, permits, etc. These factors are discussed in more detail in the next section.

Maximize the Value of Your Business

To help in your business exit planning, we have identified 20 ways to build and maximize the value of your business. Each of these concepts is discussed in detail below.

1. Build Synergistic Value

Synergistic value is when you and an acquiring company together have more value than the two separate companies.

So how might you create synergy? Perhaps your products or services could be sold to the acquiring company’s large customer base?

For example, maybe the acquiring business sells parts to bicycle stores and you have a new part that is also sold to bicycle stores. But perhaps they sell to 5,000 bicycle stores and you only sell to 500.

By getting your part into the additional 4,500 stores, they may be able to increase your sales tenfold. That’s huge synergy.

There are many other areas of potential synergy. Perhaps you have a unique core competency that can be leveraged by the acquiring business. Maybe you’re an incredible Internet marketer and the company that wants to acquire you is not great at internet marketing. And by leveraging your unique marketing skills they could dramatically grow their business.

So think through the synergy fit. Think through what companies might want to buy you at some point and what synergistic value you could bring to that organization.

2. Diversify & Lock Down Your Customer Base

The next thing you can do to maximize the value of your business is to diversify and lock down your customer base.

There’s a threat to your company’s value when you have a concentrated customer base, which is few customers or customers representing 5%, 10%, or more of your sales. That is risky because if one of your bigger customers or multiple big customers leave, your sales and profits could drop precipitously.

Another big risk is when customers have personal relations with the owner because you (the owner) would be lost after the acquisition. Or if customers have personal relationships that are too strong with a salesperson and that salesperson leaves your business and the customer leaves us with them.

So what are the solutions to these threats?

First, diversify your customer base. You need to be thinking about diversifying your customer base so that you don’t have the risk of a big customer or more leaving.

Secondly, if possible, secure contractual sale agreements such as long-term contracts and licenses to ensure ongoing sales from customers. The idea here (and lowest risk to buyers) is contractually recurring revenues.

3. Diversify Vendors

The third thing you want to do to maximize the value of your business is to diversify your vendors. Consider what would happen if a key vendor raises its prices or goes out of business. Would your business be in trouble?

Acquirers are going to ask what happens if something happens to one of your vendors. Likewise, you need to be asking this question of your business right now.

So what are the solutions?

Finding and using multiple vendors. Importantly, you’re probably not going to generate more revenue tomorrow because you spend hours looking for multiple vendors. But it’s going to make your business stronger. It’s going to remove risk from your business and make it more valuable to acquirers.

4. Put “Successor” Clauses in Customer (and Partner, Vendor/Supplier, etc.) Contracts

The next way to maximize your value is to put successor clauses in your customer, partner, and vendor contracts.

Successor clauses ensure that your key contracts survive significant changes in ownership so the buyer receives full value from them. Many contracts become void if your business transfers ownership and you obviously don’t want that. So when you sign contracts with customers, vendors, partners, etc., make sure you have clauses that the contract survives the acquisition of your company. If not, this could significantly reduce the value of your business.

5. Bolster Your Senior Management Team

The next way to maximize the value of your business is to bolster your senior management. You need to make sure your business can run without you because then there’s less risk to the buyer.

Doing this also means that you might need to stay with the business for less time after you sell it. To bolster your senior team, and make sure that you’ve hired and trained quality people that can run the business for you.

6. Bolster Your Middle Management Team

The next thing to boost value is to bolster your middle management team. Once again, you need more trained people so the business can run without you. This lessens the risk to a buyer.

Having trained middle management will help ensure a smooth transition to the new owner. There’s always going to be a transition period where you’re integrating your business with the acquirers. The more trained staff you have makes it much easier for the acquirer to buy your business and have the business run as usual from the get-go.

7. Build Management Team Solidarity

The next value-building strategy is to build management team solidarity on a day-to-day basis. To succeed with the day-to-day business operations, your team must have the same business vision and financial goals as you.

During the sales process to an acquirer, the same holds true. This is because buyers will interview your team members individually during the due diligence phase to make sure there is a cohesive vision/direction among your key employees.

8. Improve the Quality of Your Team

Will acquiring your team add significant value to the buyer? How unique is your team? And do you have unique talents?

As you can imagine from these questions, your team can add a lot of value to your company.

To begin, if your team has unique technical capabilities, great customer service people, etc., it could have great value to an acquirer. Likewise, it’s extremely valuable if your team have a track record or ability to do things really well on an ongoing basis, such as:

  • Conduct R&D to come up with new products
  • Bring new products to market
  • Provide exceptional customer service

So, think about what your team is great at, and work to make them even better.

9. Build Brand Value

The next way to maximize the value of your company is to build your brand. The value of your brand and your reputation can be considerable. A well-known brand results in recognition which often equals sales for the foreseeable future.

So building your brand gives you a lot of recognition, which has a lot of value. Building your brand also gives you trust. This is why a lot of brands are acquired.

So think about the value of your brand. How can you build your brand to make it more well-known?

10. Build Intellectual Property

Intellectual Property (IP) can provide significant value. IP includes your patents, processes, copyrights, trademarks and service marks, and trade secrets.

Sometimes your IP value can represent the entire purchase price of your business.

Think about intellectual property and how you use that IP to create real value for your company. And ideally how it can provide even more value to an acquirer.

11. Improve Your Culture

The next way to build value is through your culture.

Zappos is a great example of a company that built a great culture. And as a result, Amazon acquired it for over a billion dollars.

So you think about how you can build a great company culture that allows you to build a solid company and be acquired for a lot of money. Importantly, Zappos’ culture became a threat to Amazon and Amazon purchased the company because of this threat.

So consider this question: can your culture positively “infect” the culture of an acquirer?

It’s one thing to build a great culture but think about if you can create a great culture that when acquired, is so great and strong that you can “infect” the larger company that buys you with it. That’s a great way to build value.

12. Build Back-Office Infrastructure

You can also build value through your back-office infrastructure.

Your back-office infrastructure includes all the departments that support your revenue-generating areas, such as IT, human resources, accounting, legal, etc. A solid back-office ensures your business continues to run smoothly without you and after an acquisition.

This is really important to financial buyers because financial buyers want to see your business grow as a standalone business. They’re looking to acquire your business, grow it for four to eight years, and then sell it.

A strong back-office infrastructure can also be important for strategic buyers. They will care if you have a strategic or competitive advantage in any of these back-office areas. If not, they’re going to dissolve or integrate your back office into their own departments.

13. Build Revenues, Subscribers/Customers &/or EBITDA

Building revenue streams, subscribers, customers, and/or EBITDA is an obvious way to really build value in your company.

Subscribers and customers are assets that are highly valued and bring future sales and maximize profits.

And revenue and EBITDA are key financial measures that show your success and can be used to estimate the price at which acquirers might purchase your company.

14. Acquire Great Locations

Another way to maximize your value. Is by making sure your location(s) is/are very strong.

By locking up the right locations, you can add a lot of value to your organization.

For example, Rosetta Stone has kiosk lease agreements at airports throughout the world. That’s really valuable…if an acquirer wanted to buy Rosetta Stone, they would instantly gain visibility in airports throughout the world.

Likewise, when FedEx purchased Kinko’s, it instantly gained hundreds of well-placed retail locations.

15. Build Your Distribution Network

Another way to maximize value is through your distribution network.

Distributors, resellers, and/or affiliates are individuals and organizations that sell their products and services for you. That’s a huge asset that can maximize your revenues and profits, and which could do the same for your acquirer.

So, the question to ask yourself is: what can you do to gain a large distribution network that will increase your revenues and make you a more attractive acquisition target?

16. Improve Your Product/Service Portfolio

The next way to really build value in your business is to focus on your product and service portfolio.

Think about the products and services you currently offer. Are they unique? Can they be leveraged by an acquirer? Do they represent a threat to an acquirer’s business?

Think about what new products and or services you can build to develop value. More products generally equal more revenues, more customers, more intellectual property, and less vulnerability.

The more products you have, the more you could cross-sell your current customers, upsell them, and the less vulnerable you’d be to a competitor who launches a similar product to yours.

17. Show Financial Savings

The next way to maximize value is through financial savings. Do you have economies of scale in certain areas? Do you do things so often that you’re able to get your costs down on a per-unit basis? If so, such cost savings could be valuable to an acquirer.

18. Create Systems & Processes

Likewise, do you have any processes, systems and ways and ways of doing business that save money? These will all be valuable to your current business and to acquirers.

Likewise, systems and processes can add tremendous value to your business right away. And quality systems and processes are valuable assets. They allow you to perform with precision and consistency. They allow you to perform at lower costs and gain efficiencies and allows you to quickly and easily train and integrate new team members.

So focus on building quality systems and processes.

19. Create a Great Website

Your website can also be a source of value maximization too.

Not only might your website, based on your brand, attract visitors. But, if you’ve invested in SEO or search engine optimization, you might organically rank for many keywords. If your site is SEO optimized, an acquirer might be able to use it to rank for additional keywords that have significant value to them.

So it’s worth building a great website and optimizing it for search engines.

20. Achieving Government Hurdles

Achieving/overcoming government hurdles can add significant value to your business. Getting permits, zoning approval licenses, regulatory approvals, and certifications can be extremely valuable in the short-term to your business, but also really valuable to an acquirer.

Doubling the Value of Your Company

Doing everything listed above can exponentially increase the value of your business. In addition, you can literally double the value/purchase price of your company by expertly executing the sales transaction:

  • Presentation : how you position your company and support your valuation
  • Professional sales process : getting more buyers, revealing information at the right times, etc.
  • Negotiating and closing skills : getting the right deal done

Creating Your Exit Strategy Business Plan

The process of creating your exit strategy business plan includes the following:

1. Create a List of Potential Acquirers

If you are interested in being acquired at some point in the future, identify companies you think would be ideal.

2. Determine How You Will/Might Be Valued

Go through the 20 value maximization concepts presented above and identify which of them would be most valuable to each potential acquirer.

3. Create Your Strategic Plan

In your strategic plan, identify each of the ways you will build value (e.g., develop new systems).

Document the timeline for creating each new asset along with the financial requirements and the staff members who will lead each initiative.

How Growthink Can Help

These concepts should help you think about how your brand can be more valuable to potential acquirers. The goal is not only to attract them but also to convert casual visitors into sales. Achieving these goals will make it easier for you to get out of the rat race and finally achieve success as an entrepreneur or business owner. If this all sounds complicated and overwhelming, we’re here to help!

You can get started today on your exit strategy using our Ultimate Business Plan Template to help you create a business plan if you are seeking funding. If you don’t need outside funding to execute your exit plan, use our Ultimate Strategic Plan Template .

Our team of experts is also ready to help! At Growthink, we specialize in helping entrepreneurs grow their businesses through expert advice on business models, business plans & strategy, financial planning, and exit strategy and valuation services. Contact us today to learn more.  

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Resources: M&A Encyclopedia

Comprehensive articles on every step of the process of buying or selling a business from the most exhaustive encyclopedia of M&A articles in the industry.

Business Exit Plan & Strategy Checklist | A Complete Guide

It’s not enough to merely hand over the keys at the closing. You need a strategy. An exit strategy.

An exit strategy, as the term implies, is a plan to assist you in exiting your business. All exit plans will vary, but they all contain common elements.

The three common elements that all business exit strategies should contain are:

  • A valuation of your company. The process of valuing your company involves three steps, the first being an assessment of the current value of your business. Once this value is calculated, you should plan how to both preserve and increase that value.
  • Your exit options. After you have determined a range of values for your company and developed plans for preserving and increasing this value, you can begin exploring your potential exit options. These can be broken down into inside, outside, and involuntary exit options.
  • Your team. Finally, you should form a team to help you prepare and execute your exit plan. Your team can consist of an M&A advisor, attorney, accountant, financial planner, and business coach.

If you are considering selling your business in the near future, planning for the sale is imperative if you want to maximize the price and ensure a successful transaction. This article will give you a solid understanding of these elements and how you can put them together to orchestrate a smooth exit from your business.

Table of Contents

  • Measure the Value

Preserve the Value

Increase the value, inside exit options, outside exit options, involuntary exit options, team members, the annual audit, business exit plan strategy component #1: valuation.

Your exit strategy should begin with a valuation, or appraisal, of your company. The process of valuing your company involves three steps, the first being an assessment of the current value of your business. Once this value is calculated, you should then plan how to both preserve and increase the value of your business.

Let’s explore each of these components — assess, preserve, increase — in more depth.

Assess the Value

The first step in any exit plan is to assess the current value of your business.

Here are questions to address before beginning a valuation of your company:

  • Who will value your company?
  • What methods will that person use to value your company?
  • What form will the valuation take?

Who: Ideally, whoever values your company should have real-world experience buying and selling companies , whether through business brokerage, M&A, or investment banking experience. They should also have experience selling companies comparable to yours in size and complexity. Specific industry experience related to your business is helpful, but not essential, in our opinion. There are loads of professionals out there who possess the academic qualifications to appraise your business but who have never sold a company in their lives. These individuals can include accountants or CPAs, your financial advisor, or business appraisers. It is essential that your appraiser have real-world M&A experience. Without hands-on experience buying and selling companies comparable to yours, an appraiser will be unprepared to address the myriad nuances of the report or field the dozens of questions that will arise after preparing the valuation.

Action Step: Ask whoever is valuing your business how many companies they have sold and what percentage of their professional practice is devoted to buying and selling businesses versus other activities.

What Methods: Most business appraisers perform business valuations for legal purposes such as divorce, bankruptcy, tax planning, and so forth. These types of appraisals differ from an appraisal prepared for the purpose of selling your business. The methods used are different , and the values will altogether be different as well. By hiring someone who has real-world experience selling businesses, as opposed to theoretical knowledge regarding buying and selling businesses, you will work with someone who will know how to perform an appraisal that will stand the test of buyers in the real world.

Form: Your M&A business valuation can take one of two forms:

  • Verbal Opinion of Value: This typically involves the professional spending several hours reviewing your financial statements and business, then verbally communicating an opinion of their assessment to you.
  • Written Report: A written report can take the form of either a “calculation of value” or a “full report.” A calculation of value cannot be used for legal purposes such as divorce, tax planning, or bankruptcy, but for the purpose of selling a business, either type is acceptable.

Is a verbal or written report preferable? It depends. A verbal opinion of value can be quite useful if you are the sole owner and you do not need to have anyone else review the valuation.

The limitations of a verbal opinion of value are:

  • If there are multiple owners, there may be confusion or disagreement regarding an essential element of the valuation. If a disagreement does arise, supporting documentation for each side will be necessary to resolve the disagreement.
  • You will not have a detailed written report to share with other professionals on your team, such as attorneys , your accountant, financial advisor, and insurance advisor.
  • The lack of such a detailed report makes it difficult to seek a second opinion, as the new appraiser will have to start from scratch, adding time and money to your process.

For the reasons above, we often recommend a written report, particularly if you are not planning to sell your business immediately.

We have been involved in situations in which CPA firms have valued a business but had little documentation (one to two pages in many cases) to substantiate the basis of the valuation.

In one example, the CPA firm’s measure of cash flow was not even defined; it was simply listed as “‘cash flow.” This is a misnomer as there are few agreements regarding the technical definition of this term. As a result, any assumption we might have made would have led to a 20% to 25% error at minimum in the valuation of the company. By having a written report in which the appraiser’s assumptions are documented, it is simple to have these assumptions reviewed or discussed.

Note: When hiring someone to value your company, you are paying for a professional’s opinion but keep in mind that this opinion may differ from a prospective buyer’s opinion. Some companies have a narrow range of value (perhaps 10% to 20%), while other companies’ valuations can vary wildly based on who the buyer is, often by up to 100% to 200%. By having a valuation performed, you will be able to understand the wide range of values that your company may attain. As an example, business appraisers’ valuations often contain a final, exact figure, such as $2,638,290. Such precision is misleading in a valuation for the purpose of a sale. We prefer valuations that result in a more realistic price range, such as $2,200,000 to $2,800,000. An experienced M&A professional can explain where you will likely fall within that range and why.

Once you have established the range of values for your company, you should develop a plan to “preserve” this value. Note that preserving value is different from increasing value. Preserving value primarily involves preventing a loss in value.

Your plan should contain clear strategies to prevent catastrophic losses in the following categories:

  • Litigation: Litigation can destroy the value of your company. You and your team should prepare a plan to mitigate the damaging effects of litigation. Have your attorney perform a legal audit of your company to identify any concerns or discrepancies that need to be addressed.
  • Losses you can mitigate through insurance: Meet with your CPA, attorney, financial advisor, and insurance advisor to discuss potential losses that can be minimized through intelligent insurance planning. Examples include your permanent disability, a fire at your business, a flood, or other natural disasters, and the like.
  • Taxes: You should also meet with your CPA, attorney, financial advisor, and tax planner to mitigate potential tax liabilities.

Important: The particulars of your plan to preserve the value of your company also depend on your exit options, which we will discuss below. Many elements of your exit plan are interdependent. This interdependency increases the complexity of the planning process and underscores the importance of a team when planning your exit.

Only after you have taken steps to preserve the value of your company should you begin actively taking steps to increase the value of your company.

There is no simple method or formula for increasing the value of any business. This step must be customized for your company.

This plan begins with an in-depth analysis of your company, its risk factors, and its growth opportunities. It is also crucial to determine who the likely buyer of your business will be . Your broker or M&A advisor will be able to advise you regarding what buyers in the marketplace are looking for.

Here are some steps you can take to increase the value of your business:

  • Avoid excessive customer concentration
  • Avoid excessive employee dependency
  • Avoid excessive supplier dependency
  • Increase recurring revenue
  • Increase the size of your repeat-customer base
  • Document and streamline operations
  • Build and incentivize your management team
  • Physically tidy up the business
  • Replace worn or old equipment
  • Pay off equipment leases
  • Reduce employee turnover
  • Differentiate your products or services
  • Document your intellectual property
  • Create additional product or service lines
  • Develop repeatable processes that allow your business to scale more quickly
  • Increase EBITDA or SDE
  • Build barriers to entry

Note: A professional advisor can help you ascertain and prioritize the best actions for your unique situation to increase the value of your business. Unfortunately, we have seen owners of businesses spend three months to a year on initiatives to increase the value of their business, only to discover that the initiatives they worked on were unlikely to yield any value to a buyer.

Business Exit Strategy Component #2: Exit Options

After you have determined a range of values for your company and developed plans for preserving and increasing this value, you can begin exploring your potential exit options.

Note: These steps are interdependent. You can’t determine your exit options until you have a baseline valuation for your company, but you can’t prepare a valuation for your business until you have explored your exit options. A professional can help you determine the best order to explore these steps, or if the two components should be explored simultaneously. This is why real-world experience is critical.

All exit options can be broadly categorized into three groups:

  • Inside: Buyer comes from within your company or family
  • Outside: Buyer comes from outside of your company or family
  • Involuntary: Includes involuntary situations such as death, divorce, or disability

Inside options include:

  • Selling to your children or other family members
  • Selling to your business to your employees
  • Selling to a co-owner

Inside exits require a professional who has experience dealing with family businesses, as they often involve emotional elements that must be navigated and addressed discreetly, gracefully, and without bias. Inside exit options also greatly benefit from tax planning because if the money used to buy the company is generated from the business, it may be taxed twice. Lastly, inside exits also tend to realize a much lower valuation than outside exits. Due to these complexities, most business owners avoid inside exits and choose outside options. Fortunately, most M&A advisors specialize in outside exit options.

Outside exit options include:

  • Selling to a private individual
  • Selling to another company or competitor
  • Selling to a financial buyer, such as a private equity group

Outside exits tend to realize the most value. This is also the area where business brokers, M&A advisors, and investment bankers specialize.

Involuntary exits can result from death, disability, or divorce. Your plan should anticipate such occurrences, however unlikely they may seem, and include steps to avoid or mitigate potential adverse effects.

Business Exit Strategy Component #3: Team

Finally, you should form a team to help you plan and execute your exit plan. Many of these steps are interdependent — they are not always performed sequentially, and some steps may be performed at the same time. Forming a team will help you navigate the options and the sequence.

Your team should involve the following:

  • M&A Advisor/Investment Banker/Business Broker: If you are considering an outside exit.
  • Estate planning
  • Financial planning
  • Tax planning, employee incentives, and benefits
  • Family business
  • Accountant/CPA: Your accountant should have experience in many of the same areas as your attorney, along with audit experience and retirement planning. Again, it is unlikely that your CPA possesses all of the skills you need. If further expertise is needed, the CPA should be able to access the skills you need, either through colleagues at their firm or by referral to another accountant.
  • Financial Planner/Insurance Advisor: This team member is critical. We were once in the late stages of a sale when the owner suddenly realized that, after deducting taxes, his estimated proceeds from the sale would not be enough to retire on. An experienced financial planner can help with matters like these. They should have estate and business continuity planning experience, as well as experience with benefits and retirement plans.
  • Business Coach: A business consultant or coach may be necessary to help implement many of the changes needed to increase the value of your business, such as building infrastructure and establishing a strong, cohesive management team. Doing this often requires someone who can point out your blind spots. A coach can help you take these important steps.

Where to find professionals for your team

The best way to find professionals for your team is through referrals from trusted friends and colleagues who have personally worked with the professional in question. Don’t ignore your intuition, however. It’s important that you and your team members have good chemistry.

We recommend that you assemble your professional advisors for an annual meeting to perform an audit of your business. The goal of this audit is to prevent and discover problems early on and resolve them. As the saying goes, “An ounce of prevention is worth a pound of cure.”

Your advisors are a valuable source of information. This annual meeting is an opportunity to ensure that they’re all on the same page and that there are no conflicts among your legal, financial, operational, and other plans. An in-person or virtual group meeting enables you to accomplish this quickly and efficiently.

A sample agenda might include a review of the following:

  • Your operating documents
  • New forms of liability your business has assumed
  • Any increase in value in your business and changes that need to be made, such as increases in insurance or tax planning
  • Capital needs
  • Insurance requirements and audit, and review of existing coverages to ensure these are adequate
  • Tax planning — both personal and corporate
  • Estate planning — includes an assessment of your net worth and business value, and any needed adjustments
  • Personal financial planning

If you are contemplating selling your business, creating an exit plan will answer these critical questions:

  • How much is my business worth? To whom?
  • How much can I get for my business? In what market?
  • How much do I need to make from the sale of my business to meet my goals?

Taking the strategic steps discussed in this article — assembling a stellar professional team and optimizing the team’s collective experience — will get you well on your way toward successfully selling your business and turning confidently toward your next adventure.

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exit strategy example business plan

Exit Strategies - All You Need to Know about Business Exit Planning

exit strategy example business plan

Kison Patel is the Founder and CEO of DealRoom, a Chicago-based diligence management software that uses Agile principles to innovate and modernize the finance industry. As a former M&A advisor with over a decade of experience, Kison developed DealRoom after seeing first hand a number of deep-seated, industry-wide structural issues and inefficiencies.

exit strategy example business plan

The question, “What is your exit plan?” tends to draw blank expressions when asked to business owners.

A survey of business owners conducted by the Exit Planning Institute shows that a startling 2 out of 10 businesses that are listed for sale eventually close a transaction, and of these, around a half end up closing only after significant concessions have been made by the seller.

Business owners need to think about exit planning before searching for potential buyers. The tools provided by DealRoom can be a valuable asset to any business owner looking to develop an exit strategy.

By working with a team of professional advisors, accountants, lawyers, and brokers, you can ensure the right documents are in place for a business exit whenever the time comes.

In this article, we talk about creating a business exit plan and how to make one for your business.

What is a Business Exit Strategy?

A business exit strategy outlines the steps that a business owner needs to take to generate maximum value from selling their company. A well-designed business exit strategy should be flexible enough to allow for unforeseen contingencies and account for the fact that business owners don’t always decide on their own terms when to exit. By creating a strategy in advance, owners can ensure that they can at least maximize value in the event of an unplanned exit from the business.

What is a Business Exit Strategy?

Investor exit strategy

An investor exit strategy is similar to that of a business exit strategy. However, investors look for a financial return on their exit from a company, so bequeathing is never one of the options considered. An investor will often have a list of potential acquirers in mind, as well as a timeframe, as soon as their investment is made. In this type of scenario, there is often an exit multiple in mind (i.e. a multiple of EBITDA or a multiple of the original investment made in the business).

Venture capital exit strategy

Another business exit strategy option is a venture capital exit strategy. As our article on venture capital outlines, if a company is venture funded then consider that your investor will have a pre-planned exit. As an early stage company, this is a natural part of taking investments. Usually, with a VC investment, the aim is for an exit after five years, either through an industry sale or an IPO, where they can liquidate their original equity investment.

Motives for Developing Exit Strategies

Technically, it is important for equity owners to have a broad outline of what an exit would look like. For example, the image below represents various motives ranging from financial gain to mitigating environmental risk.

Common Motives for Developing Exit Strategies

Some of the common motives for business exit include the following:

Retirement - Arguably the most common reason of all motives is retirement. Business owners will inevitably retire at some stage, and it’s best that they have an exit strategy in place before doing so.

Investment return - A business exit strategy as part of a wider investment strategy - for example, the VC company planning to go to IPO after five years - makes the exit valuation part a component of the initial investment in the business.

Loss limit -A business exit is ultimately a kind of real option for a business. If the business is hemorrhaging money, the best option may be to exit immediately - ‘cutting your losses’ on the business, a sit was.

Force majeure - Like the examples of Covid-19 and Russia’s invasion of Ukraine, sometimes an investor or owner doesn’t really have a choice: The circumstances dictate that they have to exit.

Types of Exit Strategies

Types of Exit Strategies

Sale to a strategic buyer

Strategic buyers are usually in the same industry as the company whose owner is looking to exit. And in other cases, the buyer can be in an adjacent market looking to compliment their products in an existing market, or expansion of their products into a market.

Sale to a financial buyer

Financial buyers are solely looking for a financial return from their investment in a business and the exit is the primary means of achieving this return. Examples include venture capital and private equity investors.

Initial Public Offering (IPO)

This form of exit, far more common with startups than mature companies, enables company owners to exit by selling their equity to investors in public equity markets.

Management buyout (MBO)

An exit through MBO would occur when the owner sells the company to its current management team, whose familiarity with the business technically should make them the best candidates to achieve value from an acquisition.

Leveraged buyout (LBO)

A leveraged buyout occurs when a buyer takes a loan or debt to purchase another company. The buyer also uses a combination of their assets and the acquired company's assets as collateral. Financial models can be used for multiple scenarios and simulations of when an LBO is an effective choice.

Liquidation

Liquidation can be used by a business owner to exit if they feel like the liquidation would yield cash faster or that the individual assets (i.e. property, plant, and equipment) of the business were more liquid than the business as a going entity.

Exit Strategy for Startups

Startups looking for VC investment can include an exit strategy as part of their initial pitch. It is not mandatory. Sometimes this can work when well, for example, when a startup founder is well versed in the industry and has a credible 5-year forecast.

Startup exit strategies depend on a few different factors:

Market timing

How have IPOs for startups performed in the past 12-18 months? If public markets are showing enthusiasm for companies like the one being pitched, it makes it easier to show how an exit can occur.

Comparable transactions

Similar to IPOs, companies can use comparable transactions (industry or private equity sales) to show investors their route to an exit. The comparable firms should be operating in the same or close to the same competitive space.

How to Put Together a Business Exit Plan

Remember that the purpose of the plan is to make the new business owner transition as straightforward as possible.

Although the steps which follow are general, nobody knows a business better than its owner, so take whatever steps are necessary to make your business as marketable to potential buyers as possible.

These steps also assume that you, the owner of a business, have weighed up the options elsewhere. Personal finances, family situations, and other career options are beyond the scope of this article.

Rather, the intention of the points below is to ensure that a business will be ready to sell in the fastest possible time at a fair price.

Business exit plan

  • Know the business
  • Ensure that finances are in order
  • Pay off creditors
  • Remove yourself from the business
  • Create a set of standard operating procedures
  • Establish (and train) the management team
  • Draw up a list of potential buyers

1. Know the business

This sounds obvious but a business can lose focus quickly in the aim of diversification, to the extent that it becomes ‘everything to every man.’

This may be useful in the short-term for revenue streams, but just be sure that your business has focus. It will help you find the right buyers when the time comes and to be able to communicate which part of the market your business occupies.

2. Ensure that finances are in order

This should be a priority regardless of any future business plans.

But if you intend to sell your business at short notice, it's best to have a clean, well-maintained set of financial statements going back at least three years.

3. Pay off creditors

The less debt that a business holds on its balance sheet, the more attractive it will be to potential buyers.

A common theme among small business owners in the US is thousands of dollars of credit card debt. This can be a red flag to many buyers and should be paid off as soon as possible.

4. Remove yourself from the business

How important are you to the day-to-day operations? If your business would lose more than 10% of its revenue were you to leave, the answer is “too important.”

If revenues are tied to the owner, buyers are not going to want to buy the business if the owner is going to leave right after.

Although it can be a challenge, seek to minimize your direct impact on the business, in turn making it more marketable.

5. Create a set of standard operating procedures

Closely related to the above point, ensure that your business has a set of standard operating procedures (SOPs), ideally in written form, that would allow any owner to maintain the business in working order merely by following a set of instructions.

6. Establish (and train) the management team

Are the existing managers capable of taking over the business and running it as is? If you leave the business for a vacation and one of your managers calls you several times, the answer to this question may be ‘no’.

They may need more training, or you may need a different set of managers. In either case, having a capable team in place will be valuable whether you decide to exit your business or not.

7. Draw up a list of potential buyers

A list of buyers should be made and refreshed on a reasonably regular basis. Ideally, you would know their criteria for buying a business, but this is not always practical.

Keeping a long list of buyers means that you can reach out to them at short notice if it is  required at some point in the future.

This list is likely to include at least some of your managers or suppliers.

Importance of Exit Strategy

Many owners make the mistake of thinking that a business exit plan means the same thing as a ‘retirement plan’, believing that they can start thinking about putting one together as soon as they hit 55 years of age.

This is an error. Not because your departure is impending, but because it doesn’t give you the flexibility.

Instead of looking at a business exit plan as a retirement plan, rethink it as a divestment option.

An alternative way of thinking about this is, what happens to the business owner that doesn’t have an exit strategy? Think of the value destruction that occurs to the business if something unexpected happens and the owner has to make an unplanned sale, at a discount, in unattractive market circumstances, or even at a time of personal loss.

Instead of thinking about the business exit as something that will happen in the future, rethink it as something that could happen at any moment.

Exercising critical thinking to write a business exit strategy can be exciting as well as enlightening. Thinking of an exit as an end state is not the best approach since this limits businesses to a strict definition. Rather, consider how the process can be supportive of a business' growth strategy. Take these top three considerations:

  • Financial considerations: If the exit strategy has a target revenue number in 5 years then how will the business get there? What financial dashboards are needed to properly run the company? How will expenses be managed so a business does not outspend against earnings?
  • Supply chain considerations: What products will need to be in your catalog to maximize margins? What inventory turns ratio are you aiming for on a monthly basis?
  • People considerations: Who do I hire to grow the company exponentially? What benefits do I offer to attract the best talent but don't cause complications at the exit? How do I write the force majeure so I protect the company and employees?

A business's primary goal is long-term value generation to its customers, itself, and its stakeholders. Having a thoughtful exit strategy shows the maturity of a business's Leadership towards longevity and value creation. There are many facets of the journey from owner motivation to financial strategies.

At DealRoom we help the owners of businesses of all sizes prepare for this eventuality. Our Professional Services team is ready to help businesses think through these details. It is important that an exit strategy be a journey throughout the growth stages.

Talk to us about how our tools can be an asset for you in your exit plan.

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How to Create an Exit Strategy Plan

exit strategy example business plan

In order to capture and share the critical information regarding your exit plan in an organized and easy-to-reference format, I recommend an approach like the one used by the increasingly popular business model canvas (BMC). 

The BMC is a lean startup template. It depicts in a simple, yet highly informative visual layout the nine essential building blocks of a business model: customer segments , value propositions, channels , customer relationships , revenue streams, key resources, key activities, key partnerships and cost structure. This brings us to what I call the exit strategy canvas (ESC) as a template for your exit plan. 

The main goal of the ESC is to document the essential building blocks of your exit strategy and create a shared language for communicating and iterating on your exit plan. I recommend that you lay out the ESC on one page to focus on what is absolutely critical and essential. 

I recommend that you include the following essential building blocks in your ESC.

6 Essential Building Blocks of an Exist Strategy

  • Success definition : What would a successful exit look like? 
  • Core hypotheses : What do you have to believe to be true for a successful exit to happen? 
  • Strategic opportunities : What are key areas for value creation through partnerships? 
  • Key acquirers : Who are your potential acquirers, and what are your selection criteria? 
  • Risks and challenges : What can jeopardize a successful sale to an acquirer? 
  • Key mitigants : What can you do to improve your chances of a successful sale? 

Success Definition 

The entire exit strategy is worthless unless it is crystal clear to all involved what specific outcome an exit is intended to achieve. Once everyone understands the destination, then they can support the journey. 

For many entrepreneurs, a successful exit is one that ensures the survival of their startup. And this survival is all about the continuation of what lies at the heart of a startup’s core values and what the founding team considers to be a part of their personal legacy. That may consist of taking its products from a regional offering to the national or global level, creating new distribution channels, or enabling new features that can make it appealing to wholly new customer segments.

As you consider breathing life into your dream scenario, make sure your definition of success answers the following: 

  • How would an exit best manifest the values of your startup? 
  • How could an exit best promote the mission of your startup? 
  • What would be the ideal time frame for an exit transaction? 

Core Hypotheses 

The next task is to make explicit what you would have to believe to be true for that outcome to manifest. Explicitly stating your assumptions helps you and other team members to discuss and gain clarity about what are the necessary conditions for success, and use them to gauge your future progress. 

For example, if a successful exit for you would entail providing growth opportunities for your employees, then at the time of the acquisition you have to believe that your employees have sufficient skills and expertise of value to an acquirer. Thus, stating the hypothesis allows you and your team to reflect on whether this holds true for the current state of affairs, and if not, what you can do to make that a reality going forward. 

To adopt a more quantitative approach, especially if your definition of success has a valuation threshold, you need to investigate and make explicit what it would take to justify your valuation goal based on either other comparable transactions or public market valuation benchmarks. Your desired valuation will likely necessitate achieving a certain set of financial (e.g., revenues, margin, profitability profile, or unit economics) or user (e.g., customer size, growth rate) metrics. A specific valuation goal makes it much more efficient for you to screen and filter acquisition opportunities as they arise. 

More Built in Book Excerpts Why Salesforce’s Biggest Customer Hated Our Product

Strategic Opportunities 

In its simplest form, strategic opportunities are the key areas for value creation with your acquirer. They are the areas of complementarity between your strengths and those of the acquirer. 

As such, to identify areas of strategic opportunity you have to start with a good sense of the strengths and weaknesses of your startup. Then, you need to consider the strengths and weaknesses of potential acquirers and how your strengths can fill in the missing piece for their weaknesses and vice versa. This is what is referred to as “synergy.” 

Exit strategy plan exit path book cover

If you have a prohibitively high cost of customer acquisition that prevents you from profitably growing and acquiring new customers at scale, you would have a strategic opportunity to partner with a company that has already figured out a way to acquire those customers at scale profitably but is looking for additional products to sell to those customers. 

Think of companies in your ecosystem for whom you could fill a strategic need, such as adding revenue, adding profits, staving off a competitive threat, accelerating time to market for a product or service, or improving their market share. 

As you enter into discussions with potential strategic partners, you will want to validate and revise your assumptions around areas of synergy and strategic opportunities and be on the lookout to uncover new areas to add to your list. 

Enjoying the Excerpt? Check Out the Book! Exit Path: How to Win the Startup End Game

Key Acquirers 

This is your wish list of potential acquirers. It will also serve as the list of potential strategic partners whom you will be building a business relationship with over the course of the coming months and years. Be as aspirational as possible. You are not looking for who could be an acquirer of your startup today; instead, you are looking for whom you would be thrilled to join forces with long-term. 

For most cases, you could simply state the category or type of company. For a startup serving small businesses, you could refer to “domain registrars,” “website creation platforms,” “e-commerce tool providers” as potential acquirers. 

Keep in mind that at this stage your goal is to provide directional guidance as to what are critically important criteria for assessing strategic partners and what the universe of those potential partners looks like. 

Risks and Challenges 

When considering your exit path, there are in general three types of risks that most businesses have to contend with: execution risk, market risk, and competitive risk.  

Execution Risk

Execution risk is a reflection of your core competencies, external relationships, reputation, and capitalization structure, all of which can make or break a successful exit. Weakness in your core competencies (such as an inability to manage the mergers and acquisitions process effectively, leadership gaps or a lack of a scalable business model) can stop many acquirers in their tracks. That is why building a strong business is table stakes for a successful exit.

Another often-overlooked risk factor in selling one’s startup is its capitalization structure: you increase your exit risk as you raise more money at higher valuations as well as when you grant voting rights to financial and strategic investors , as it reduces the founding team’s control and increases the possibility for others to block a transaction. It’s important that you understand the implication of those increasingly lofty valuations which at some point may render you “too expensive” for many acquirers. 

More on Startups 4 Strategies for Growing a Company Without VC Funding

Market Risk 

As those of us who have tried to sell a company during a market crash know, market risk is always around the corner, and changes in macroeconomic conditions can very much impact the appetite of potential acquirers without forewarning. Because market risk is always present, the more desperate you are to sell, the higher the impact of market risk will be on your startup, so it is ideal not to time a potential exit around a time when you think you will be running out of cash. 

Competitive Risk 

No matter how unique your startup’s offering is, there is always competition in the market. And thus there exists the competitive risk that your ideal potential acquirers snatch up your competitor instead. Be sure to identify and list your largest competitive threats as an important strategic reminder for your organization. 

Key Mitigants 

For each risk and challenge you identify, call out a clear and specific set of mitigants. 

Mitigating execution risks and competitive risks will generally involve building the requisite capabilities and creating strong relationships with your potential acquirers. The best way to mitigate against market risks, in my opinion, is to increase your operating runway so that you can live through short-term market fluctuations. 

Remember that the ESC is a tool intended to efficiently capture and communicate your exit plan. As you create your ESC, feel free to customize it to your own needs, modifying what is captured in each block or adding new blocks that you may find to be particularly well-suited for your startup’s unique set of values, challenges, and opportunities.

Excerpted from the book  Exit Path: How to Win the Startup End Game by Touraj Parang, pages 44-53. Copyright  © 2022 by Touraj Parang. Published by  McGraw Hill, August 2022.

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How to Plan Your Exit Strategy

Male entrepreneur leaning up against his truck while staring out into the distance smiling. Thinking about how he'll exit his business.

Candice Landau

8 min. read

Updated October 27, 2023

Many people start businesses with the goal of seeking acquisition. But others decide later that it’s time to move on—they’d like to pull their time and money out of a particular venture. It’s never too early (or too late) to start planning your exit strategy.

  • What is the purpose of an exit strategy?

An exit strategy is how entrepreneurs (founders) and investors that have invested large sums of money in  startup companies  transfer ownership of their business to a third party. It’s how investors get a return on the money they invested in the business.

Common exit strategies include being acquired by another company, the sale of equity, or a management or employee buyout.

  • Who needs an exit strategy?

For anyone seeking  venture capital funding  or  angel investment , having a clear exit strategy is essential.

Even if you’re a small business, it’s a good idea to plan ahead and think about how you will transfer ownership of the business down the line, whether you choose to sell the business, or try to scale it and seek to be acquired. It’s never too early to plan.

  • Should I include my exit strategy in my business plan?

Including your exit strategy in  your business plan  and in  your pitch  is especially important for startups that are asking for funding from angel investors or venture capitalists for funds to grow and scale.

Most of the time, small businesses don’t need to worry as much about it because they probably won’t seek investment (not all good businesses are good investments for angels and VCs). The small business founder’s goal might be to own the business themselves for the foreseeable future.

  • What type of exit strategy is right for my business?

This list should give you an idea of common types of exit strategies. The type of strategy you adopt will depend on what type of company you are and your financial and strategic goals.

Here are some of the most common:

Acquisition, initial public offering (ipo), management buyout, family succession, liquidation, what’s your biggest business challenge right now.

The acquisition is often known as a “merger and acquisition.” This is because, when a company decides to sell itself to another company, the buyer will often incorporate or merge the services of that company into their own product or service offerings.

This happened when Google bought YouTube, seamlessly integrating the video platform into their own search product. Now, when you google a topic, you will often notice that videos appear on your search result page.

On a smaller scale, it might happen when a coffee chain decides to buy a bakery business so that they can add a line of pastries and tarts to their menu. An acquisition or merger can be an appropriate approach for businesses of all sizes, including startups.

The best thing about an acquisition is that if you get “strategic alignment” right, you stand to sell the company for more than it may actually be worth. And, if there are multiple companies interested in your product, you may be able to raise the price further or begin a bidding war!

Reasons an outside company might seek to acquire or merge with another company range from allowing them to break into a new market, to giving them a competitive edge, or a strong built-in customer base. Or they might be interested in eliminating you as a competitor from the current market.

If you know that being acquired is your exit strategy right from the start, this gives you room to make yourself appear attractive to the companies who may be interested in purchasing you. That said, remember that those particular companies may decide not to purchase you or may never have been interested in doing so. If you do go down the road of creating a very niche product only one specific company will be interested in, you also stand to lose big time if they don’t take the bait.

This exit strategy is right for a small number of startups and larger corporations, but is not suited to most small businesses, primarily because it means convincing both investors and Wall Street analysts that stock in your business will be worth something to the general public.

For smaller companies that have already begun expanding—like  restaurants that have franchised —an IPO may be a good way for the owner to recoup money spent, though it is worth noting that he or she may not be allowed to sell stock until the  lock-up period  has passed.

A couple of well-known examples of restaurants on the stock exchange include  Buffalo Wild Wings  and  BJ’s .

If you think this is the right strategy for you, or you want to at least have the option of going public later, the easiest way to get listed is to seek investors that have done it before with other companies. They will know the ins and outs and be able to better prepare you for the process.

Speaking of the process—it’s long and hard. If you do succeed in winning over the hearts and data-centric minds of Wall Street analysts, you’ve still got to conform to the standards set by the  Sarbanes-Oxley Act , you will have underwriting fees you’ll need to pay, a potential “lock-up period” preventing you from selling your shares, and of course, the risk of seeing the stock market crash.

While an IPO may be a suitable route for a company like Twitter or Macy’s, consider whether or not you want to weather the headache of tailoring business decisions to the market and to what analysts believe will do well.

If you’ve built a business whose legacy you want to see continued long after you’re gone, you may want to consider turning to your employees.

That’s right—not only will they have a good idea of how things are run already, but they will have intimate knowledge regarding company culture, corporate goals, and a pre-existing determination to make it work.

There’s also the added bonus that you’ll have to do a lot less due diligence. Having management or employees buy your business is a good idea if legacy matters most to you. Of course, you could always consider passing the business on to family, but there’s always the risk there that they won’t understand the business, won’t have the determination to make it succeed, and if you’re splitting the business between family members, the possibility of family rivalry.

On that note, if your family has been brought up with an intimate knowledge and understanding of your business, they may well be the best people to pass things on to.

In fact, this is exactly what happened at Palo Alto Software. Founded by Tim Berry in 1988, his daughter Sabrina Parsons was made CEO and her husband Noah the COO shortly before the recession hit.

The decision was strategic and allowed Tim to pursue other interests, including putting a focus on  writing . Since then, Sabrina and Noah have adapted the flagship desktop-based business planning product,  Business Plan Pro , into a SaaS tool called  LivePlan .

Passing Palo Alto Software on to family was more fortuitous than carefully planned. Tim had always  encouraged his children  to follow their own path. In fact, none of them got degrees in business. It just so happened that Sabrina and Noah had entered the internet world early in their careers and gained the experience necessary to join and build out Palo Alto Software’s product offerings.

If you are considering passing your business on to your children or other family members, there are a number of things worth thinking about and planning for, including ensuring that whoever is set to take over the business has the relevant skill set, is competent, and is committed to the future and success of the business. This will make it a lot easier to retire.

For small businesses, liquidation is a common exit strategy. It’s one of the fastest ways to close a business, and may sometimes be the only option in cases where the operation of the business is dependent solely upon one individual, where family members are not interested in or capable of taking over, and where  bankruptcy  is close at hand.

It’s worth noting though that any profits made from selling assets need to be used to pay creditors first.

To make any money using liquidation as an exit strategy, you’re going to have to have valuable assets you can sell—like land, equipment, and so on.

If it’s not too much hassle and if your decision to liquidate is not related to finances, think instead about selling the business to the public. Are there any ways you can make it appealing?

If this isn’t an option and it’s better to close the doors before you lose money, liquidating your assets may be your best bet.

  • Planning for the future?

If you’re putting together your business plan or preparing to pitch to investors for the first time, think through your exit strategy. Make sure your  financials are up to date  and that you’re reviewing them regularly so your  business’s valuation  is accurate.

If your successful exit is tied up in hitting certain financial milestones, don’t hesitate to ask your  strategic business advisor  for some guidance. There are other things you can do to prepare your business for acquisition and other exits— check out this article  for more information.

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It’s Not the End: Why Creating an Exit Strategy Sets Your Business Up for Long-Term Success

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While there is a lot of content around how to successfully get your business off the ground, there isn’t much talk about creating an exit strategy to successfully quit a business. After all, who would want to think about leaving when you have likely spent years, if not decades, establishing your empire? Many businesses think of an exit strategy as a sort of “doom and gloom” outlook. In reality, it’s a good safety net to have, especially when you understand what it is and what it means for your business.

What is an exit strategy in business?

An exit strategy is a proactive plan to shift out of or liquidate an investment position, business transaction or venture. “An exit plan provides a roadmap for how businesses or investors will exit after realizing gains from their investment,” notes Carey Smith, senior vice president and chief operating officer of Blue Cross and Blue Shield of Minnesota. “Having a plan to exit helps manage risk by reducing exposure to potential downsides if conditions change and is especially important for startups or high-risk investments that face higher levels of uncertainty.”

Just as important as the strategy that initiated the business is the one that guides the “how” and “when” to exit. In an ideal situation, this plan is detailed along with triggers, measures and even events that could signal the right time to exit and move to the next thing.

“Being deliberate in defining the exit triggers is important because they may not be recognizable when they arise, if there hasn’t been proactive thought as to what they may be,” Smith adds. Also, business models, strategies and market conditions frequently change and evolve as the business progresses, so it is important to revisit them periodically. While not all exit triggers might need drastic action, defining them helps the business understand when to persevere and when to move on. 

“Remaining flexible is important. In our case at Plurilock, we went public very early during the pandemic, as that was an option available to us then,” says Ian Paterson, CEO and founder of Plurilock, a leading AI cybersecurity company. “However, if we wanted to do the same thing right now, it would have been very difficult to accomplish that.” 

Plan your business with the end in mind

As creators and entrepreneurs, starting with the end in mind is not an easy mindset to have and certainly requires a shift in perspective. Be aware of business environments and world factors that could influence or impact your decision, and make that a point of focus while building the strategy.

When thinking about the “how to” of exit strategies, Paterson recommends thinking of it like a car trip.

  • Start with the end in mind . Know who you’re going to sell to and what they value. 
  • Plan a route . Know what milestones you need to hit at various stages along the journey. 
  • Ask for directions . Engage with service providers like bankers and accountants frequently.
  • Don’t run out of gas . Make sure when you go to sell the company you don’t run out of money and negotiating power.
  • Pace yourself . It’s a long ride.

And contrary to popular belief, an exit strategy does in fact align interests, incentives and goals regarding growth and profitability because it defines targets aimed toward business growth. “A well-defined exit strategy allows both businesses and investors to set expectations, manage risks, provide motivation and unlock the value created in an investment,” Smith notes.

Are there different types of exit strategies?

Key types of exit strategies available to businesses include sale of ownership, initial public offering (IPO), liquidation, recapitalization, debt restructuring or refinancing, ownership transfer, merger or buyback.

To determine which strategy might work best for you, a good place to start is to look at industry models applicable to similar businesses. Paterson advises that if the exit strategy is acquired by a competitor, certain aspects of the company, like corporate finances and internal controls, are more important than if the goal was to take the company public. 

If the goal is to get acquired by a venture capital, intellectual property, personnel and other assets might be more valuable. “With my company Plurilock, where we are acquiring regional cybersecurity providers, we are looking for strong sales and marketing teams with strong contracts,” he adds. “We value the strength of those relationships, and it is a strong component of our value process.” 

Exit strategy models to emulate

When looking at industry models to emulate, both Smith and Paterson share examples of both successes and failures. Smith notes that Facebook’s acquisition of Instagram ($1 billion), Oculus ($2 billion) and WhatsApp ($19 billion) provided significant returns for its investors. 

Likewise, Walt Disney Company’s acquisitions of Pixar and Marvel provided significant revenue and strategic market positioning. Perhaps one of the most notable is Google’s acquisition of Android, “which has successfully positioned Google as the market leader in smartphone operating systems, allowing significant control and access to consumer data,” Smith shares.

“Twitter is an interesting case study because it played out on the public stage,” Paterson notes. “Like many exits, at some points during the process, it looked like the deal would not go through, but eventually it closed roughly as expected.” 

For all the successful exits, there are an equal or greater number of failed exits that didn’t get the expected results. “Yahoo is one of the best examples of failing to acquire other exiting companies and failing to maximize on their own exit,” Smith recalls. “Yahoo refused to buy Google for $1 billion in 1998 and again refused $5 billion in 2002. In 2023, Google has a market cap of $1.7 trillion. And sadly, in 2008 Yahoo turned down an offer to be acquired by Microsoft for $44.6 billion and instead sold themselves to Verizon in 2016 for only $4.6 billion.”

How to create an exit strategy

When building a successful exit strategy, Smith suggests a checklist to help you get started:

  • Document all the potential situations that would call for an exit, like market considerations, industry challenges and business model economics. 
  • Allow for flexibility to support changes in priorities and space for new ideas, alternatives and changes in market conditions. 
  • Define success metrics and articulate the outcome objectives and the value they will generate. 
  • Note investor expectations to ensure alignment with the achievable value expected. 
  • Create a roadmap with an exit timeline and expected targeted returns.

The choice of business model and industry influences the selection of an appropriate exit strategy. Startups take time to build an attractive valuation and therefore require patient investors with long-term exit plans such as venture capital firms. High-growth businesses require large capital investments, so they typically prefer acquisition exits in order to scale. 

High capital-intensive businesses have exit plans that require mergers where value is created through combined scale. Business models that generate value from intellectual property (IP) typically have exit plans that involve acquisition or revenue sharing and licensing deals that provide royalty.

Plan B: Less conventional options

If none of these types of exit strategies work, the good news is that there are a few less conventional exit strategies to consider. Employee stock ownership plans (ESOPs) give employees a more vested interest in the company, thereby allowing the original investor or owners to step back. Joint ventures (JVs) are co-owned partnerships where external parties are brought into the company fold. 

“Special Purpose Acquisition Company (SPAC) is a newer exit strategy that is growing in popularity, where a merger takes place with external SPAC providing capital investment opportunities that allow it to go public (IPO) at a much higher valuation,” Smith advises. Lastly, earnouts are contingent payments that can be based on future company performance. 

Creating an exit strategy is a smart business decision from the get-go and shows a forward-thinking approach to any business. For one to be successful, it is important to research and think about all factors that would impact the how , why and what of an exit strategy. 

“The most helpful thing to do would be to talk to a specialist, such as an investment banker and business broker to talk through strategies,” Paterson suggests. Smith adds, “Aligning the exit strategy with the vision and entrepreneurial motivations allows achieving value while also serving goals beyond just an immediate financial return.”

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Start » strategy, ready to move on how to create an exit plan for your business.

Exit plans are necessary to secure a business owner’s financial future, but many don’t think to establish one until they’re ready to leave.

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An exit strategy is an important consideration for business owners, but it’s often overlooked until significant changes are necessary. Without planning an exit strategy that informs business direction, entrepreneurs risk limiting their future options. To ensure the best for your business, plan your exit strategy before it’s time to leave.

What is an exit strategy?

An exit strategy is often thought of as the way to end a business — which it can be — but in best practice, it’s a plan that moves a business toward long-term goals and allows a smooth transition to a new phase, whether that involves re-imagining business direction or leadership, keeping financially sustainable or pivoting for challenges.

A fully formed exit strategy takes all business stakeholders, finances and operations into account and details all actions necessary to sell or close. Exit strategies vary by business type and size, but strong plans recognize the true value of a business and provide a foundation for future goals and new direction.

If a business is doing well, an exit strategy should maximize profits; and if it is struggling, an exit strategy should minimize losses. Having a good exit strategy in practice will ensure business value is not undermined, providing more opportunities to optimize business outcomes.

[Read more: What Is a Business Valuation and How Do You Calculate It? ]

Benefits of an exit strategy

Planning a complete exit strategy well before its execution does more than prepare for unexpected circumstances; it builds purposeful business practices and focuses on goals.

Even though a plan may not be used for years or decades, developing one benefits business owners in the following ways:

  • Making business decisions with direction . With the next stage of your business in mind, you will be more likely to set goals with strategic decisions that make progress toward your anticipated business outcomes.
  • Remaining committed to the value of your business . Developing an exit strategy requires an in-depth analysis of finances. This gives a measurable value to inform the best selling situation for your business.
  • Making your business more attractive to buyers . Potential buyers will place value in businesses with planned exit strategies because it demonstrates a commitment to business vision and goals.
  • Guaranteeing a smooth transition . Exit strategies detail all roles within a business and how responsibilities contribute to operations. With every employee and stakeholder well-informed, transitions will be clear and expected.
  • Seeing through business — and personal — goals after exit . Executing an exit strategy that’s right for your business’s value and potential can prevent unwanted consequences of exit, like bankruptcy.

Because leaving your business can be emotional and overwhelming, planning a proper exit strategy requires diligence in time and care.

Weighing your options: closing vs. selling

There are two strategies to consider for your exit plan.

Sell to a new owner

Selling your business to a trusted buyer, such as a current employee or family member, is an easy way to transition out of the day-to-day operations of your business. Ideally, the buyer will already share your passion and continue your legacy.

In a typical seller financing agreement, the seller will allow the buyer to pay for the business over time. This is a win-win for both parties, because:

  • The seller will continue to make money while the buyer can start running the show without a huge upfront investment;
  • The seller may also remain involved as a mentor to the buyer, to guide the overall business direction; and
  • The transition for your employees and customers will be a smooth one since the buyer likely already has a stake in the business.

However, there are downsides to selling your business to someone you know. Your relationship with the buyer may tempt you to compromise on value and sell the business for less than what it’s worth. Passing the business to a relative can also potentially cause familial tensions that spill into the workplace.

Instead, you may choose to target a larger company to acquire your business. This approach often means making more money, especially when there is a strong strategic fit between you and your target.

The challenge with this option is the merging of two cultures and systems, which often causes imbalance and the potential that some or many of your current employees may be laid off in the transition.

[Read more: 5 Things to Know When Selling Your Small Business ]

Liquidate and close the business

It’s hard to shut down the business you worked so hard to build, but it may be the best option to repay investors and still make money.

Liquidating your business over time, also known as a “lifestyle business,” works by paying yourself until your business funds run dry and then closing up shop.

The benefit of this method is that you will still get a paycheck to maintain your lifestyle. However, you will probably upset your investors (and employees). This method also stunts your business’s growth, making it less valuable on the market should you change your mind and decide to sell.

The second option is to close up shop and sell assets as quickly as possible. While this method is simple and can happen very quickly, the money you make only comes from the assets you are able to sell. These may include real estate, inventory and equipment. Additionally, if you have any creditors, the money you generate must pay them before you can pay yourself.

Whichever way you decide to liquidate, before closing your business for good, these important steps must be taken:

  • File your business dissolution documents.
  • Cancel all business expenses that you no longer need, like registrations, licenses and your business name.
  • Make sure your employee payment during closing is in compliance with federal and state labor laws.
  • File final taxes for your business and keep tax records for the legally advised amount of time, typically three to seven years.

Steps to developing your exit plan

To plan an exit strategy that provides maximum value for your business, consider the six following steps:

  • Prepare your finances . The first step to developing an exit plan is to prepare an accurate account of your finances, both personally and professionally. Having a sound understanding of expenses, assets and business performance will help you seek out and negotiate for an offer that’s aligned with your business’s real value.
  • Consider your options . Once you have a complete picture of your finances, consider several different exit strategies to determine your best option. What you choose depends on how you envision your life after your exit — and how your business fits into it (or doesn’t). If you have trouble making a decision, it may be helpful to speak with your business lawyer or a financial professional.
  • Speak with your investors . Approach your investors and stakeholders to share your intent to exit the business. Create a strategy that advises the investors on how they will be repaid. A detailed understanding of your finances will be useful for this, since investors will look for evidence to support your plans.
  • Choose new leadership . Once you’ve decided to exit your business, start transferring some of your responsibilities to new leadership while you finalize your plans. If you already have documented operations in practice in your business strategy, transitioning new responsibilities to others will be less challenging.
  • Tell your employees . When your succession plans are in place, share the news with your employees and be prepared to answer their questions. Be empathetic and transparent.
  • Inform your customers . Finally, tell your clients and customers. If your business will continue with a new owner, introduce them to your clients. If you are closing your business for good, give your customers alternative options.

The best exit strategy for your business is the one that best fits your goals and expectations. If you want your legacy to continue after you leave, selling it to an employee, customer or family member is your best bet. Alternatively, if your goal is to exit quickly while receiving the best purchase price, targeting an acquisition or liquidating the company are the optimal routes to consider.

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How To Plan a Graceful Business Exit Strategy [Free Consult]

exit strategy example business plan

A business exit strategy is a strategic plan that business owners use to leave or sell the business. Entrepreneurs, investors, venture capitalists, and individuals use a company exit strategy to sell assets for a profit or limit losses. Having an exit strategy business plan helps protect you, your business, and investors.

When starting a business, you probably are not thinking about selling it. But suppose   you decide to leave the company you created. In that case, an exit strategy will enable you to exit the way you want to.   If the business is successful, you will be able to sell it for a profit. However, if the business venture doesn’t perform as expected, you can cut your losses and leave.

On this page, you will learn what a company exit strategy is. You will also find out why small business exit strategy planning is  crucial for any startup   or business venture.

two-business-people-walking-outdoors-300x200

What Is an Exit Strategy in Business?

An exit strategy in business refers to how you plan to transfer ownership of the company when you leave. After investing large sums of money in the new business, an exit plan will help ensure a healthy return on investment. However, exit strategy planning is vital whether the business is successful or not.

Common types of exit strategies include a strategic acquisition , initial public offerings (IPO), management buyouts, and selling to someone you know. Other examples of  exit plans   are mergers, liquidation, or filing for bankruptcy.

Why a Company Exit Strategy Is Necessary

All types of companies  — large and small — need an exit strategy.  Planning to leave a business  doesn’t mean planning for failure. For example, you may start the business with the intention of selling it when you  meet your profit objective . Or an exit strategy is helpful for when you plan to retire.

What about small businesses? Small business exit planning is crucial if you want to secure financing. Along with a business plan, your exit plan will give investors and creditors the confidence that their money is protected. If the business fails, the exit strategy will explain how you plan to limit their losses.

Having an exit strategy business plan is also helpful to ensure a smooth transition. For example, leaving a business that you helped establish can be a stressful time. Emotions can easily affect judgment. So, a strategic exit plan can help you make tough decisions and protect your finances.

There is another reason it’s wise to have a company exit strategy. Knowing the circumstances that cause you to leave the company helps you focus early throughout the business venture. For example, knowing the conditions for leaving can help set goals, make plans, and manage assets wisely. In addition, the exit strategy can  help ensure long-term growth   with a specific objective in mind.

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What to Consider for Small Business Exit Strategy Planning

Business exit strategy options depend on the type of company and objective. However, there are several critical elements in every exit strategy.

  • Exit strategy objectives   — It’s a good idea for any new business owner to consider individual goals. For example, you may want to have a specific return on investment or leave a legacy. Knowing your objectives helps to prioritize goals to  sell the business for a substantial profit .
  • Exit strategy timeline   — Having a time frame when you intend to leave or sell the business is vital in a company exit strategy. When you know how long you plan to be part of the business, you can plan accordingly.
  • Intentions for the business   — Include in the exit strategy what you intend to happen to the business. You may want to liquidate it after you leave, merge with another company, or leave it to a family member.
  • Market conditions   — Another factor to consider is conditions in the industry that could dictate the timing of the sale. For example, if there are many potential buyers, you could implement your strategy to sell for the highest price.

It’s a good idea to revisit your exit strategy business plan every so often. For example, maybe initially, you planned to merge your company with a larger one. However, your son now wants to buy the business from you. If you decide to sell to a family member instead of merging, update your

accordingly.

5 Exit Strategy Examples

Now we will look in detail at some common exit strategies to see which one may suit your company or small business. For each of these strategies, you will also see the pros and cons.

1. Acquisition Exit Strategy

Selling ownership of the company   is one of the most common exit strategies. An acquisition exit strategy means that you give up the right to run your business. In many cases, you could sell your business for a higher price than it’s worth, especially if you sell to a competitor.

There are a few reasons why acquisition is not an exit strategy for all business owners. First, you may not be ready to let go of the business entirely. Second, you may have to sign a noncompete agreement when selling to a competitor, meaning you can’t start a new business in the same industry.

Pros:   You can make a clean break from the business and sell it for a significant profit.

Cons:   The process can be time-consuming, and your business may cease to exist in its present form.

2. Merger Exit Strategy

An excellent small business exit strategy is to merge it with a larger company. This   type of exit strategy usually increases the value of your business . When merging your business, you typically remain part of the new company—either as an owner or manager. Usually, mergers take place with businesses in the same industry. The result is that your  business grows   in size and becomes more profitable.

Pros:   Your business can increase in value, and you could take on a new role in the merged company.

Cons:   Not the best exit plan if you want to retire or cut ties with the business.

3. Sell the Business to a Friend, Family Member, or Partner

If you want to create a legacy, then selling to someone you know is an excellent way to exit a business. For example, you could have plans to transition the company to your son or daughter or another relative. Other options to sell the business could be to a business colleague, partner, or arrange for an employee buyout.

Pros:   You can groom your successor to take on the role of owner to ensure a successful transition. Additionally, you could continue in an advisory role.

Cons:   There may not be a suitable person to leave the business to. Also, transitioning the business to a family member or friend can cause stress and even jeopardize the relationship.

4. Business Exit Strategy by Initial Public Offering (IPO)

One way to increase the value of a successful business is through an initial public offering—also referred to as “going public.” This type of exit strategy involves selling shares of stock. With this transition, you give up some or all control of the business to stockholders. However, an IPO requires time and a significant amount of money; therefore, it’s unsuitable for a quick exit strategy.

Pros:   An IPO can substantially increase the value of your business and boost brand awareness.

Cons:   Not usually suitable for small business exit strategy planning. It is also costly, involves scrutiny from shareholders, and requires meeting certain conditions.

5. Liquidation as a Company Exit Strategy

Liquidating your business is a choice many entrepreneurs make if they want to end the business operation completely. Liquidation involves selling the assets, paying off creditors and investors if you still owe money. After the liquidation, your business ceases to exist, and you have no ties to it. In most cases, liquidation is the fastest and simplest exit strategy in a business plan.

Liquidating a business can be a choice if you use the company to finance your lifestyle. You take the funds out rather than reinvesting them back into the business.

Pros:   There are fewer negotiations to leave the business, and you never need to worry about it again.

Cons:   The business ceases to exist, and you could damage relationships with employees, investors, and clients.

Which Exit Strategy Business Plan Is Best?

The best exit strategy for your business depends on several factors. The two most important things to think about are what is best for you and what is best for your business.

Here are some helpful tips on coming up with the best exit strategy for your needs:

  • Involvement   — Think about how much you want to be involved in your business in the future. Do you want to cut ties with the company but ensure that the business continues to operate? In that case, a merger or acquisition could be the best idea. Or do you want to keep your current position? If so, then maybe an IPO is best.
  • Liquidity needs   — It’s vital to know what your future financial needs will be. An acquisition will give an immediate payout. However, a merger could mean you continue to have a role in the day-to-day operations.
  • Business valuation   — Before putting your business up for sale, it’s vital to ensure it’s in an excellent financial position to maximize profits. It’s always best to speak to a professional business consultant to determine the optimal time to sell.

Need an Exit Strategy? Let’s Talk!

An exit strategy is an essential part of your business plan. From the very start of your business venture, you should know how you plan to leave it.

At Cunningham and Associates, we are here to help you achieve your business goals.

Our expert team of consultants has expertise in helping business owners develop profitable exit strategy business plans., related blog posts.

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Business Exit Strategy: Key Types, Best Practices, and Examples

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It is not news that any operating organization, not depending on its level of business performance, should have a clear exit strategy. So, what’s an exit plan? How can an exit strategy align with the overall business development? Why is an exit strategy important?

The answers to these and other questions, including types of common exit strategies, their strengths and weaknesses, examples, and tips for implementation, can be found below.

What are business exit strategies?

An exit strategy is a plan designed by a business owner, trader, or investor to liquidate or sell a financial asset once specific requirements related to this asset’s performance have been met.

Typically, entrepreneurs develop several different exit strategies to sell their ownership stakes. As a result of this business venture, entrepreneurs reduce or liquidate their involvement in the business and potentially yield significant profits in the case of success or limit losses in the event of failure.

An investor or business may choose to execute an exit strategy for various reasons — from economic downturns to more straightforward factors like an investor is dealing with a liability lawsuit or they’re looking to retire and want to redeem their investments.

Types of business exit strategies range from strategic acquisitions, mergers, and initial public offerings (IPOs) to management buyouts and sales. Additional types of exit strategies include liquidation or resorting to bankruptcy filings.

In this article, we’ll take a closer look at each business exit strategy type, defining the specifics, pros, and cons of each.

Top 8 business exit strategies to consider

Determining the best exit strategy depends on various factors, including the nature and scale of the business, its growth opportunities and needs, as well as the interests of additional stakeholders, such as multiple founders or significant shareholders. Their points of view should be considered for both proper exit strategy planning and execution.

While there are many different business exit strategies to choose from, the motives behind each vary drastically. Let’s review the most common exit strategies.

Acquisition mergers

Mergers and acquisitions is the process of consolidating companies through various transactions, including:

  • A strategic acquisition. From an exit perspective, a business may choose to follow an acquisition exit strategy to sell its ownership stake or a complete entity to another company. This business exit strategy provides liquidity to the owners while maximizing profits and leveraging synergies between the merging entities.
  • A merger. A struggling business may decide to merge with a stronger partner to maximize profits, increase its competitive potential, and improve its reputation in the eyes of venture capitalists and potential buyers.

Initial Public Offering (IPO)

An IPO is the process of offering shares of a privately held company to the public for the first time. It involves listing the company’s stock on a public stock exchange. From an exit standpoint, an IPO allows small business owners to sell assets to the public, providing liquidity and potentially generating significant value. It also enables the company to raise capital.

Acquihires refer to acquisitions primarily made for the purpose of acquiring talented individuals or a team rather than the company’s products or services. In this strategy, a business allows itself to be acquired by a larger company, primarily to gain access to its skilled employees. From an exit perspective, the business owners can benefit from the acquisition by receiving compensation for the acquisition of their company and potentially securing employment within the acquiring company.

Family succession

Family succession transition involves passing on the ownership and management of a business to another family member from the next generation. Family succession planning allows the business owners to exit the company while maintaining its legacy and ensuring continuity. A successful transition may be arranged through a business sale, gift, or other plan of action.

Selling a part to an investor or business partner

In this strategy, a business owner may choose to sell a portion of their company to an investor or business partner. This approach provides an opportunity to secure capital for expansion or other business needs while allowing the owner to retain partial ownership. It can offer liquidity and expertise from the investor or partner while reducing the owner’s stake in the business.

Employee buyouts

An employee buyout involves the purchase of a company by its existing management team or employees. This strategy allows the current employees to acquire ownership and control of the business, often with the help of external financing. It offers a succession plan for the current owner and provides an opportunity for the employees to become owners and benefit from company profits.

Bankruptcy is a strategy used when a business is unable to pay its debts and seeks legal protection from its creditors. From an exit perspective, bankruptcy involves the liquidation of the business’s assets to repay its debts. This strategy allows the business owners to cease operations and exit the business, but it typically results in little to no value for the owners, as the proceeds are used to settle outstanding liabilities.

Liquidation

Liquidation refers to the process of winding down a business and selling off its assets to pay its debts. It is often used as a last resort when a business is no longer viable or when the owners wish to exit but cannot find a buyer. Liquidation provides a way to distribute the remaining value of the business to creditors and shareholders, effectively closing down the company.

Pros and cons of business exit strategies

When is the best time to plan an exit strategy.

The best time to plan an exit strategy is well in advance, preferably during the early stages of starting a business or when a business is stable and successful. This is because the business exit process execution and planning are rather time-consuming.

However, it’s never too late to start planning an exit strategy, even if your business is already well-established.

Best practices for planning an exit strategy

When planning your exit strategy, you have two main approaches to consider — whether to sell a business or liquidate it.

1. Selling to a new owner

Selling your business to a trusted buyer, such as a current employee or family member, offers a smooth transition out of day-to-day operations. This strategy allows you to find a buyer who shares your passion and can continue your business’s legacy. Benefits of this approach include:

  • Seller financing. Allowing the buyer to pay for the business over time benefits both parties. The seller continues to generate income while the buyer takes over with a manageable upfront investment.
  • Mentorship and involvement. The seller can provide guidance and remain involved in shaping the business’s direction.
  • Smooth transition. Employees and customers are already familiar with the buyer’s involvement and experience minimal disruption.

An alternative option is targeting a larger company for acquisition . This approach often yields higher profits, especially when there is a strong strategic fit between both parties. Challenges may arise due to merging cultures and systems, potentially resulting in employee layoffs during the transition.

2. Liquidating and closing the business

While it can be challenging to shut down a business you’ve worked hard to build, it may be the best option for repaying investors while still managing to recoup some of your investment. Two approaches for liquidation are:

  • Lifestyle business. Paying yourself until business funds are depleted and then closing up shop. This method allows you to maintain your lifestyle, but it may upset investors and employees. It also limits business growth and decreases its value if you decide to sell later.
  • Quick asset sale. Closing the business and swiftly selling assets like real estate, inventory, and equipment. While this approach is straightforward, the money generated solely depends on the assets sold. Creditors must be paid before the owner can receive payment.

Regardless of the chosen liquidation method, certain essential steps must be taken before permanently closing the business:

  • File business dissolution documents
  • Cancel unnecessary registrations, licenses, and business names
  • Comply with labor laws when paying employees during closure
  • File final taxes and retain tax records for the advised period

3. Developing your exit plan: Key steps

Creating an effective exit strategy requires careful planning and attention. Follow these six steps to develop an exit plan that maximizes your business’s value:

  • Prepare your finances. Gain an accurate understanding of your personal and professional finances, including expenses, assets, and business performance. This knowledge enables informed negotiation for offers aligned with your business’s true value.
  • Consider your options. With a comprehensive financial overview, explore various exit strategies to determine the best fit for your post-exit vision. Seek guidance from a lawyer or financial professional if needed.
  • Engage with investors. Inform investors and stakeholders about your intent to exit, creating a strategy outlining repayment. A detailed financial understanding will support your plans and provide evidence to gain investor confidence.
  • Choose new leadership. Start transferring responsibilities to new leaders while finalizing your exit plans. Well-documented business operations facilitate a smoother transition of responsibilities.
  • Inform your employees. Share the news of your succession plans with employees, being empathetic and transparent. Be prepared to address their questions and concerns during the transition.
  • Notify your customers. Inform clients and customers about your exit plans. Introduce them to the new owner if the business continues or provide alternative options if you’re closing for good.

By following these steps, you can prepare and execute your exit business plan with clarity and consideration for the various stakeholders involved in your business.

Remember, the best exit strategy is the one that aligns with your goals and expectations. If you desire the legacy to continue, selling is a viable option.

Examples of exit strategy implementation

Now, let’s take a look at examples of successful companies that chose different approaches to exit strategy planning and execution but still achieved their strategic goals:

  • Instagram — Acquisition Exit Strategy. In 2012, Facebook acquired Instagram — the popular photo-sharing platform — for approximately $1 billion. Instagram’s exit strategy involved selling the company to a larger, established player in the industry. The acquisition allowed Instagram to leverage Facebook’s resources, user base, and technology while continuing to operate as a separate entity under the Facebook umbrella.
  • WhatsApp — IPO Exit Strategy. The messaging app WhatsApp IPO’d in 2014. This exit strategy involved offering shares of the company to the public, enabling investors to buy and trade those shares on a stock exchange. The IPO provided WhatsApp with significant capital infusion and allowed early investors and shareholders to monetize their holdings while still retaining some ownership in the company.
  • Ben & Jerry’s — Employee Buyout Exit Strategy. In 2000, the well-known ice cream company Ben & Jerry’s implemented an employee buyout exit strategy. Rather than selling the company to a larger corporation, the founders and board of directors chose to sell the majority of the company’s shares to its employees. This decision aligned with their values of social responsibility and employee empowerment, ensuring that the company remained independent and employee-owned.
  • A business exit strategy is a plan devised by a business owner to sell their ownership stake in a company to investors or another company, providing a means to potentially increase revenue streams in the case of success or minimize losses in the event of failure.
  • The most common types of exit strategies include M&As, IPOs, acquihires, family successions, selling assets, employee buyouts, bankruptcy, and liquidation.
  • Some of the best practices for a successful business exit strategy include deciding on the right exit type (selling an asset or liquidating it) and developing a well-structured exit plan.
  • Key steps for planning a successful business exit strategy include financial preparation and communication with investors, new leadership, employees, and customers.

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Small Business Exit Strategies: A Brief Rundown of Your Way Out

When you first start a business, the last thing you’re thinking about is leaving it. But, life gets in the way of plans. That’s why you need an exit strategy before starting your small business. Exit strategies help make sure you, your business, and investors are protected.

There are a number of exit strategies for small business you might consider. The path you choose depends on a unique set of circumstances, like business size.

What is a company exit strategy?

An exit strategy, or plan, outlines how a business owner plans on selling their investment in their business. Exit strategies help business owners have an out if they want to sell or close the business. Entrepreneurs must create a business exit plan before starting a business and tweak it as the business grows and the market changes.

So, where does your strategy go? Include your exit strategy in the financial section of business plan .

You especially need a strong exit strategy if you plan on seeking small business financing . Investors and lenders want to know that their money is protected if your business fails.

If nothing else, the central question your business’s exit plan needs to answer is:

  • How will you protect business investments and limit losses?

Small business exit strategies

Whether you’re writing your business plan for the first time or updating it, take a look at these types of exit strategies. Remember to weigh the pros and cons of each to determine if it’s feasible.

five small business exit strategies arranged on a roadmap illustration

In a merger, two businesses combine into one. Mergers increase your business’s value, which is why investors tend to like them.

To go through with a merger, you still need to be a part of the business. Through a merger, you will be an owner or manager of the new business. Your employees might be employed by the new merged business. But if you want to sever your ties with your business, a merger is not the best exit strategy for you.

There are five main types of mergers:

  • Horizontal: Both businesses are in the same industry
  • Vertical: Both businesses that are part of the same supply chain
  • Conglomerate: The two businesses have nothing in common
  • Market extension: The businesses sell the same products but compete in different markets
  • Product extension: Both businesses’ products go well together

Before you merge businesses, make sure that the new business is a good fit with your current one. You could end up losing revenue otherwise.

2. Acquisition

An acquisition is when a company buys another business. With an acquisition exit strategy, you give up ownership of your business to the company that buys it from you.

One of the positives of going with an acquisition is that you get to name your price. A business might be apt to pay a higher price than the actual value of your business, especially if they’re a competitor.

But if you’re not ready to let go of your business, an acquisition might not be the right exit strategy for you. You may need to sign a noncompete agreement promising not to work for or start a new business similar to the one you just sold.

There are two types of acquisition: friendly and hostile. If you have a friendly acquisition, you agree to be acquired by a larger business. However, a hostile acquisition means that you do not agree. The acquiring business purchases stakes to complete the acquisition.

If an acquisition is your exit strategy, your acquisition should be friendly. You likely will attempt to find an acquiring business that you want to sell to.

3. Sell to someone you know

You may want to see your business live on under someone else’s ownership. In many cases, you can sell to someone you know as an exit strategy.

Take a look at some of the people you could sell your business to:

  • Family member (e.g., child)
  • Business colleague

Before selling your business to someone you know or are acquainted with, consider the drawbacks. You don’t want to jeopardize personal relationships over your business. Disclose things like liabilities and the profitability of your business before a family, friend, or acquaintance buys it from you.

4. Initial public offering

An initial public offering , or IPO, is the first sale of a business’s stocks to the public. This is also known as “going public.”

Unlike a private business, a public business gives up part of their ownership to stockholders from the general public. Public businesses tend to be larger. They also (generally) go through a high-growth period. By taking your business public, you can secure more funds to help pay off debt.

However, going public might be difficult for small businesses because it costs a significant amount of time and money. If you want a fast exit strategy, an IPO might not be the way to go.

To start an IPO, you need to find an investment bank, collect financial information, register with the Securities and Exchange Commission (SEC), and come up with a stock price.

5. Liquidation

Another exit strategy for small business is liquidation. With liquidation, business operations end and your assets are sold. The liquidation value of your assets go to creditors and investors. However, your creditors—not your investors—get first dibs.

Liquidation is a clear-cut exit strategy because you don’t need to negotiate or merge your business. Your business stops and your assets go to the people you owe money to.

If you liquidate your business, however, you lose your business concept, reputation, and your customers. Your business will not live on like in other exit strategy options.

How to write an exit strategy business plan

Again, you must include your exit strategy at the end of your business plan. That way, you can reference it if your business starts going south. And, potential investors can determine if you have a strong plan in place to protect their money if you leave.

When coming up with your exit strategy, consider the following factors:

  • Your business structure
  • Your business size
  • The economy
  • Profitability
  • Entrepreneurial family members or friends
  • Competitors

Here is an exit strategy example you might include in your business plan:

  • Our preferred exit strategy is to merge with another local small business. The business plan supports the possibility of a merge. We believe a product extension merger would be our target exit strategy, but we are also open to a horizontal merger.

Keep in mind that you will update your business plan and exit strategy as your company goals change.

For example, your original exit plan may have been to merge with another business. But after 25 years of owning your business, your daughter says she wants to buy it from you. If you decide to sell instead of merge, update your business plan to reflect your new exit strategy.

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This article has been updated from its original publication date of December 27, 2016.

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What Is an Exit Strategy?

Understanding exit strategies, who needs an exit plan, why is it important to have an exit plan, exit strategies for startups, exit strategies for established businesses, exit strategies for investors, why is it important to have an exit plan, what are common exit strategies used by startups, what are common exit strategies used by established companies, what exit strategies can investors use, the bottom line.

  • Investing Basics

Exit Strategy Definition for an Investment or Business

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

exit strategy example business plan

Gordon Scott has been an active investor and technical analyst or 20+ years. He is a Chartered Market Technician (CMT).

exit strategy example business plan

An exit strategy is a contingency plan executed by an investor , venture capitalist , or business owner to liquidate a position in a financial asset or dispose of tangible business assets once predetermined criteria have been met or exceeded.

An exit strategy may be executed to exit a nonperforming investment or close an unprofitable business. In this case, the purpose of the exit strategy is to limit losses.

An exit strategy may also be executed when an investment or business venture has met its profit objective. For instance, an angel investor in a startup company may plan an exit strategy through an initial public offering (IPO) .

Other reasons for executing an exit strategy may include a significant change in market conditions due to a catastrophic event; legal reasons, such as estate planning , liability lawsuits, or a divorce; or even because the business owner/investor is retiring and wants to cash out.

Key Takeaways

  • An exit strategy is a conscious plan to dispose of an investment in a business venture or financial asset.
  • An exit strategy helps to minimize losses and maximize profits on investments.
  • Startup exit strategies include initial public offerings (IPOs), acquisitions, or buyouts but may also include liquidation or bankruptcy to exit a failing company.
  • Established business exit plans include mergers and acquisitions as well as liquidation and bankruptcy for insolvent companies.
  • Exit strategies for investors include the 1% rule, a percentage-based exit, a time-based exit, or selling a stake in a business.

An effective exit strategy should be planned for every positive and negative contingency regardless of the investment type or business venture. This planning should be integral to determining the risk associated with the investment or business venture.

An exit strategy is a business owner’s strategic plan to sell ownership in a company to investors or another company. It outlines a process to reduce or liquidate ownership in a business and, if the business is successful, make a substantial profit.

If the business is not successful, an exit strategy (or exit plan) enables the owner to limit losses. An exit strategy may also be used by an investor, such as a venture capitalist, to prepare for a cash-out of an investment.

For investors, exit strategies and other money management techniques can greatly help remove emotion and reduce risk . Before entering an investment, investors should set a point at which they will sell for a loss and a point at which they will sell for a gain.

Business owners of both small and large companies need to create and maintain plans to control what happens to their business when they want to exit. An entrepreneur of a startup may exit their business through an IPO, a strategic acquisition, or a management buyout, while the CEO of a larger company may turn to mergers and acquisitions as an exit strategy.

Investors, such as venture capitalists or angel investors, need an exit plan to reduce or eliminate exposure to underperforming investments so they can capitalize on other opportunities. A well-thought-out exit strategy also provides guidance on when to book profits on unrealized gains.

Businesses and investors should have a clearly defined exit plan to minimize potential losses and maximize profits on their investments. Here are several specific reasons why it’s important to have an exit plan.

Removes emotions : An exit plan removes emotions from the decision-making process. Having a predetermined level at which to exit an investment or sell a business helps avoid panic selling or making rushed decisions when emotions are high, which could accentuate a loss or not fully realize a profit.

Goal setting : Having an exit plan with specific goals helps answer important questions and guides future strategic decision making. For example, a startup’s exit plan might include a future buyout price that it would accept based on revenue turnover. That figure would help make strategic decisions about how big to grow the company to reach predetermined sales targets.

Unexpected events : Unexpected events are a part of life. Therefore, it’s essential to have an exit strategy for what happens when things don’t go to plan. For instance, what happens to a business if the owner faces an unexpected illness? What happens if the company loses a key supplier or customer? These situations need planning in advance to minimize potential losses and capitalize on gains.

Succession planning : An exit plan specifies what happens to the business when key personnel leave. For example, an exit strategy might stipulate through a succession plan that the company passes to another family member or that the business sells a stake to other owners or founders. Carefully detailed succession planning of an exit strategy can help avoid potential conflict when a business owner wants to or has to depart.

In the case of a startup business, successful entrepreneurs plan for a comprehensive exit strategy to prepare for business operations not meeting predetermined milestones.

If cash flow draws down to a point where business operations are no longer sustainable, and an external capital infusion is no longer feasible to maintain operations, then a planned termination of operations and a liquidation of all assets are sometimes the best options to limit further losses.

Most venture capitalists insist that a carefully planned exit strategy be included in a business plan before committing any capital. Business owners or investors may also choose to exit if a lucrative offer for the business is tendered by another party.

Ideally, an entrepreneur will develop an exit strategy in their initial business plan before launching the business. The choice of exit plan will influence business development decisions. Common types of exit strategies include IPOs, strategic acquisitions , and management buyouts (MBOs).

The exit strategy that an entrepreneur chooses depends on many factors, such as how much control or involvement they want to retain in the business, whether they want the company to continue being operated in the same way, or if they are willing to see it change going forward. The entrepreneur will want to be paid a fair price for their ownership share.

A strategic acquisition, for example, will relieve the founder of their ownership responsibilities but will also mean giving up control. IPOs are often considered the ultimate exit strategy since they are associated with prestige and high payoffs. Contrastingly, bankruptcy is seen as the least desirable way to exit a startup.

A key aspect of an exit strategy is business valuation , and there are specialists who can help business owners (and buyers) examine a company’s financial statements to determine a fair value. There are also transition managers whose role is to assist sellers with their business exit strategies.

In the case of an established business, successful CEOs develop a comprehensive exit strategy as part of their contingency planning for the company.

Larger businesses often favor a merger or acquisition as an exit strategy, as it can be a lucrative way to remunerate owners and/or shareholders. Rival companies often pay a premium to buy out a company that allows them to increase market share , acquire intellectual property, or eliminate competition. This raises the prospects of other rivals also placing a bid for the company, ultimately rewarding the sellers of the business.

However, a merger-and-acquisition-focused exit strategy should factor in the time and costs to organize large deals as well as regulatory considerations, such as antitrust laws .

Established companies also plan for how to exit a failing business, which usually involves liquidation or bankruptcy. Liquidation consists of closing down the business and selling off all its assets , with any leftover cash going toward paying off debts and distributing among shareholders . 

As mentioned above, most businesses see bankruptcy as a last-resort exit; however, it sometimes becomes the only viable option. Under this scenario, a company’s assets are seized, and it receives relief from its debts. However, declaring bankruptcy could prevent business owners from borrowing credit or starting another company in the future.

Investors can use several different exit strategies to prudently manage their investments. Below, we look at several strategies that help minimize losses and maximize gains.

Selling equity stake : Investors with shares in a startup or small company could exit by selling their equity stake in the business to other investors or a family member. Selling an equity stake may form part of a succession plan agreed upon by founders when starting a business. If selling a startup stake to a family member, it’s important that they understand any conditions tied to the investment.

The 1% rule : Investors apply this rule by exiting an investment if the maximum loss equals 1% of their liquid net worth . For example, if Olivia has a liquid net worth of $2 million, she would cut an investment if it generates a loss of $20,000 ((1 ÷ 100) × 2,000,000). The 1% rule helps investors take a systematic approach to protect their capital.

Percentage exit : Using this strategy, investors exit an investment when it has gained or fallen by a certain percentage from its purchase price. For instance, Ethan, an angel investor, may decide to sell his share in a startup if it achieves a 300% return on investment (ROI) . Conversely, Amelia, a venture capitalist, may decide to sell her share in a startup if it drops 20% in value.

Time-based exit : Investors apply this strategy by exiting their investment after a specific amount of time has passed. For example, Noah may decide to sell his stake in a business after 18 months if it has not generated a positive return. A time-based exit helps free up capital from underperforming investments that could be used for other opportunities. 

Businesses should have a clearly defined exit plan to help manage risk and capitalize on opportunities. Specifically, an exit plan helps remove emotion from decision making, assists with strategic direction, helps to plan for unexpected events, and provides details about an actionable succession plan. 

Exit strategies used by early-stage companies include initial public offerings (IPOs), strategic acquisitions, and management buyouts (MBOs). Entrepreneurs typically select an exit plan before launching a business that fits their longer-term business development decisions and goals. The exit strategy that an entrepreneur chooses depends on factors such as how much involvement they want to retain in the business and its future long-term potential.

More established companies favor mergers and acquisitions as an exit strategy because it often leads to a favorable deal for shareholders, particularly if a rival company wants to increase its market share or acquire intellectual property. Larger companies may exit a loss-making business by liquidating their assets or declaring bankruptcy.

Investors can capitalize on gains and reduce risk by using exit strategies such as the 1% rule, a percentage-based exit, a time-based exit, or selling their equity stake in a business to other investors or family members. Investors typically set an exit strategy before entering into an investment, as it helps to manage emotions and determine if there is a favorable risk-return tradeoff .

Exit strategy refers to how a business owner or investor will liquidate an asset once predetermined conditions have been met. An exit plan helps to minimize potential losses and maximize profits by keeping emotions in check and setting quantifiable goals.

Common exit strategies for startups include IPOs, strategic acquisitions, and MBOs. More established companies often favor a merger or acquisition as an exit strategy but may also choose to go into liquidation or file for bankruptcy if becoming insolvent . Meanwhile, investors can exit investments using strategies such as the 1% rule, a percentage-based exit, a time-based exit, or selling their equity stake in a business.

Selling My Business. “ The Importance of Having an Exit Plan .”

AllBusiness.com, via Internet Archive. “ 10 Reasons Why Your Exit Strategy Is as Important as Your Business Plan .”

Ansarada. “ Different Business Exit Strategies, Their Pros and Cons .”

Experian. “ What Is an Exit Strategy for Investing? ”

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Exit Strategy Template

Exit Strategy Template

What is an Exit Strategy?

An exit strategy is a plan of action that outlines how an organization will leave a market or business. Exit strategies may be necessary when an organization is no longer able to compete in a particular market, when the market is shrinking, or when an organization decides to focus on a different product or service. Exit strategies typically involve minimizing costs, reducing contractual obligations, and disposing of assets.

What's included in this Exit Strategy template?

  • 3 focus areas
  • 6 objectives

Each focus area has its own objectives, projects, and KPIs to ensure that the strategy is comprehensive and effective.

Who is the Exit Strategy template for?

This exit strategy template is designed for organizations of all sizes and industries that need to create a strategy to exit a market or business. It provides a framework and a set of guidelines for each step of the process. The template can be used as-is or customized to fit the needs of the organization.

1. Define clear examples of your focus areas

Focus areas are the broad topics that the exit strategy should address. Examples of focus areas include reducing costs, reducing employees, and reducing assets. Each focus area should be broken down into specific objectives, actions, and measures. This allows you to create a plan of action to achieve the desired outcome.

2. Think about the objectives that could fall under that focus area

Objectives are specific goals that need to be achieved in order to complete the exit strategy. Objectives should be realistic and achievable. They should also be measurable, so you can track your progress and determine when the objective has been achieved. Examples of some objectives for the focus area of Exit Market could be: Identify and Minimize Exit Costs, and Reduce Contractual Obligations.

3. Set measurable targets (KPIs) to tackle the objective

KPIs, or key performance indicators, are measurable goals that can be tracked and monitored to measure progress. KPIs should be specific, measurable, attainable, relevant, and timebound (SMART). They should be set for each objective, and should be regularly monitored to ensure that the objectives are being met. An example of a KPI for the focus area of Exit Market could be: Calculate exit costs.

4. Implement related projects to achieve the KPIs

Projects, or actions, are the steps that will be taken to achieve the objectives and reach the KPIs. Projects should be specific and actionable. They should also be realistic and achievable, and should be completed within a reasonable timeframe. An example of a project related to Exit Market could be: Analyze cost of exiting market.

5. Utilize Cascade Strategy Execution Platform to see faster results from your strategy

Cascade Strategy Execution Platform is a comprehensive strategy and execution platform that helps organizations optimize performance, accelerate results, and achieve their business objectives. With Cascade, you can easily create, track, and measure your strategy to ensure it is successful.

Examples of a Business Plan Exit Strategy

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Part of the business planning process is the exit strategy -- bailing out of the business at some point before it dies. The exit strategy is actually a plan to redeem the company from its original investors so they can realize their 10 lbs. of flesh for taking the risk in starting or growing your company. An exit strategy is also important to the bank as a plan to retire the debt incurred at start-up. The desirability of each strategy is dependent on the mix of ownership, original intent, market conditions and company performance.

Feed It to the Chipper

In the worst case, the company will be broken into pieces and fed to the liquidators as so much chum. This path is dictated by poor financial performance, lack of a viable market for either the company or its products or the impatience of the investors to continue funding a dry hole.

Owner Buyout

In many cases, the founder or the employees will have an intense desire to keep their jobs. This scenario assumes a well-performing company that is generating positive cash flow and profits. An agreement is struck with the investors, stockholders or lien holders establishing the value of the company. The employee group will find a way to finance the amount necessary to buy out the interest of the others, thus taking control of the company away from potentially hostile forces.

Sell the Company

This exit strategy is just as it seems. From inception, you build sales and brand value to get the attention of potential suitors. You may have predetermined a level of profit at which you begin to market the company. You may have done such a good job of building a brand that a competitor or conglomerate will see your company as a good fit to its long-term strategy. This option often results in dismissal of most management in the target company and some consolidation in the ranks.

The most complex exit strategy is jumping into the morass of regulations managed by the Securities and Exchange Commission. The Sarbanes-Oxley Bill made the process of selling all or part of a company to the public through the issuance of stock a challenging proposition. The regulations will keep your lawyers happy for years to come. If you plan to use this option, you must start the planning process almost from inception due to the stringent recordkeeping necessary.

  • "Venture Capital Handbook"; David Gladstone, et al.; 2002
  • Securities and Exchange Commission: Laws That Protect Investors

After attending Pasadena City College as a business major, Ron Sardisco spent 35 years studying small business and organizational behavior. More than 20 years as a banker, 10 years as a small business owner and five years as a business adviser fuel his passion for writing and mentoring others. An award-winning photographer, he was also a contributing columnist to the "Antelope Valley Press."

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8+ SAMPLE Exit Strategy Business Plan in PDF

Exit strategy business plan, 8+ sample exit strategy business plan, what is an exit strategy business plan, 4 types of exit strategies business owners should know, how to create an exit strategy business plan, what are the common reasons why an owner decides to sell his or her business, how do you deal with your customers in the event you decide to close your business, what are the factors that need to be considered when creating an exit strategy plan.

Exit Strategy Business Plan Template

Exit Strategy Business Plan Template

Exit Strategy Business Planning in PDF

Exit Strategy Business Planning in PDF

Printable Exit Strategy Business Plan

Printable Exit Strategy Business Plan

Exit Strategy Business Plan Example

Exit Strategy Business Plan Example

Exit Strategy Private Business Owners Planning

Exit Strategy Private Business Owners Planning

Printable Exit Strategy Business Planning

Printable Exit Strategy Business Planning

Sample Exit Strategy Business Plan

Sample Exit Strategy Business Plan

Successful Exit Strategy Business Plan

Successful Exit Strategy Business Plan

Standard Exit Strategies Business Plan

Standard Exit Strategies Business Plan

4 types of exit strategies business owners should know  , step 1: executive summary, step 2: business narrative, step 3: provide a current market analysis, step 4: exit strategy, step 5: financial statements, share this post on your network, you may also like these articles, 27+ sample individual learning plan in pdf | ms word | google docs | apple pages.

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  1. Selling Your Business

  2. Is Plan part of Strategy!!🧐🤔

  3. Business Exit Strategies: Essential Tips for Successfully Leaving Your eCommerce Venture

  4. How to Maintain the DEMAND in-front of a PROSPECT after the PLAN ?

  5. Build Exit Strategy into Business Plan (Lesson 5.3.1 Introduction)

  6. Exit Strategy -- Sleepwalking

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  1. Business Exit Strategy

    A business exit strategy ensures that company managers have systems in place for recording essential information on a regular basis. 2. Get a better understanding of revenue streams. An exit plan requires that one keeps consistent and up-to-date data regarding the business' performance.

  2. How to Write a Business Exit Plan

    You leave the firm cleanly, plus you gain the earnings from the sale. Liquidate: Sell everything at market value and use the revenue to pay off any remaining debt. It is a simple approach, but also likely to reap the least revenue as a business exit plan. Since you are simply matching your assets with buyers, you probably will be eager to sell ...

  3. Business Exit Strategy Planning Guide

    A business exit strategy is a plan that an owner or executive creates and follows to liquidate their stake in a business, ideally at a substantial profit. A successful business exit strategy requires careful planning and should be periodically revised to best reflect the current business conditions.

  4. How to Develop a Business Exit Strategy [+ Templates]

    Follow these steps to develop a business exit strategy: determine when you want to leave, define what you want to achieve, identify potential buyers or successors, evaluate and increase the current value of your business and assemble the right team. Write an exit plan, create a communication plan, develop a contingency plan and build a data room.

  5. Business Exit Plan & Strategy Checklist

    Business Exit Plan Strategy Component #1: Valuation. Your exit strategy should begin with a valuation, ... As an example, business appraisers' valuations often contain a final, exact figure, such as $2,638,290. Such precision is misleading in a valuation for the purpose of a sale. We prefer valuations that result in a more realistic price ...

  6. Business Exit Strategy: Definition, Examples, Best Types

    A business exit strategy is a plan that a founder or owner of a business makes to sell their company, or share in a company, to other investors or other firms. Learn about the common types of exit strategies, such as IPOs, acquisitions, and MBOs, and how they affect business valuation, liquidity, and profitability.

  7. Exit Strategy: Definition, Types, Business Plan (+Template)

    A business's primary goal is long-term value generation to its customers, itself, and its stakeholders. Having a thoughtful exit strategy shows the maturity of a business's Leadership towards longevity and value creation. There are many facets of the journey from owner motivation to financial strategies.

  8. How to Create an Exit Strategy Plan

    This brings us to what I call the exit strategy canvas (ESC) as a template for your exit plan. The main goal of the ESC is to document the essential building blocks of your exit strategy and create a shared language for communicating and iterating on your exit plan. I recommend that you lay out the ESC on one page to focus on what is absolutely ...

  9. How to Plan Your Exit Strategy as a Business Owner

    An exit strategy is how entrepreneurs (founders) and investors that have invested large sums of money in startup companies transfer ownership of their business to a third party. It's how investors get a return on the money they invested in the business. Common exit strategies include being acquired by another company, the sale of equity, or a ...

  10. How to Create an Exit Strategy: Everything You Need to Know

    An exit strategy is a proactive plan to shift out of or liquidate an investment position, business transaction or venture. ... both Smith and Paterson share examples of both successes and failures ...

  11. How to Develop an Exit Plan for Your Business

    Steps to developing your exit plan. Because leaving your business can be emotional and overwhelming, planning a proper exit strategy requires diligence in time and care. To plan an exit strategy that provides maximum value for your business, consider the six following steps: Prepare your finances. The first step to developing an exit plan is to ...

  12. 8 Business Exit Strategies: Which Is Best for You?

    This strategy means possibly severing relationships with employees, partners, clients, customers, and anyone else involved with the day-to-day or general operations of your business. 8. Declare Bankruptcy. As far as small business exit strategy planning goes, this last method is the option that you can't really plan for.

  13. How To Plan a Graceful Business Exit Strategy [Free Consult]

    Why a Company Exit Strategy Is Necessary. All types of companies — large and small — need an exit strategy. Planning to leave a business doesn't mean planning for failure. For example, you may start the business with the intention of selling it when you meet your profit objective.Or an exit strategy is helpful for when you plan to retire.

  14. What is Business Exit Strategy? Types, Best Practices + Examples

    An exit strategy is a plan designed by a business owner, trader, or investor to liquidate or sell a financial asset once specific requirements related to this asset's performance have been met. Typically, entrepreneurs develop several different exit strategies to sell their ownership stakes. As a result of this business venture, entrepreneurs ...

  15. Exit Strategies for Small Business: Merger, IPO, More

    Here is an exit strategy example you might include in your business plan: ... Keep in mind that you will update your business plan and exit strategy as your company goals change. For example, your original exit plan may have been to merge with another business. But after 25 years of owning your business, your daughter says she wants to buy it ...

  16. 6 Actionable Steps For Preparing Your Exit Strategy

    You should plan this strategy at least three to five years in advance (ideally ten years) with the understanding that your goals and business may evolve over time. 1. Identify your expectations ...

  17. Exit Strategy Definition for an Investment or Business

    Exit Strategy: An exit strategy is a contingency plan that is executed by an investor, trader, venture capitalist or business owner to liquidate a position in a financial asset or dispose of ...

  18. Exit Strategy Template

    An exit strategy is a plan of action that outlines how an organization will leave a market or business. Exit strategies may be necessary when an organization is no longer able to compete in a particular market, when the market is shrinking, or when an organization decides to focus on a different product or service.

  19. PDF 3-11 Small Business Exit Strategy

    At the end of this module, you will be able to: Identify business exit strategy options, including various selling options or liquidation, and advantages and disadvantages of each option. Identify ways to make your small business more marketable to potential buyers. Identify additional considerations in selling or closing your small business.

  20. Examples of Business Exit Strategies

    An exit strategy is a way to turn you operation over to another entity or to cease operating altogether. Liquidation Businesses that are struggling to survive may choose to liquidate their assets.

  21. Examples of a Business Plan Exit Strategy

    Examples of a Business Plan Exit Strategy. Part of the business planning process is the exit strategy -- bailing out of the business at some point before it dies. The exit strategy is actually a ...

  22. 8+ SAMPLE Exit Strategy Business Plan in PDF

    Step 1: Executive Summary. An executive summary summarizes what the exit strategy business plan is all about. Its main goal is to capture the reader's attention and to invite them all the way to read through the whole document or presentation. In an exit strategy business plan, the executive summary should explain the reason why there is a ...

  23. An Exit Strategy Every Business Advisor Should Know About

    For example, one of our clients, who runs a construction business, transitioned to a 100% ESOP (employee stock ownership plan) and shifted ownership from himself to his 68 employees. Now he's the ...

  24. Capital Markets Update: Ørsted presents updated business plan following

    As a result of the business plan approved by Ørsted's Board of Directors, Ørsted has updated its ambition for installed renewable capacity from approx. 50 GW to 35-38 GW by 2030, which will be more than double its current installed capacity of 15.7 GW. ... financial condition, cash flows, business strategy, ambitions, plans, and future ...