exit strategy example business plan

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Knowledgebase Topics

• General Information
• 1 - Preparation
• 2 - Valuation
• 3 - Exit Options
• 4 - M&A Team
• 5 - Marketing
• 6 - Letter of Intent
• 7 - Deal Structure
• 8 - Due Diligence
• 9 - Closing
• 10 - Transition

Business Exit Plan & Strategy Checklist | A Complete Guide

Executive Summary 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.

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.

Preserve the Value

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.

Increase the Value

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 Exit Options

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

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 Exit Options

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

Team members.

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/ M&A Consultant /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.

The Annual Audit

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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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.

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

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.

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.

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.

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

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.

Get your M&A process in order. Use DealRoom as a single source of truth and align your team.

Exit Strategies

Plans for the future liquidation of a financial position

What are Exit Strategies?

Exit strategies are plans executed by business owners, investors, traders, or venture capitalists to liquidate their position in a financial asset upon meeting certain criteria. An exit plan is how an investor plans to get out of an investment.

When Are Exit Strategies Used?

An exit plan may be used to:

• Close down a non-profitable business
• Execute an investment or business venture when profit objectives are met
• Close down a business in the event of a significant change in market conditions
• Sell an investment or a company
• Sell an unsuccessful company to limit losses
• Reduce ownership in a company or give up control

Examples of Exit Plans

Examples of some of the most common exit strategies for investors or owners of various types of investments include:

• In the years before exiting your company, increase your personal salary and pay bonuses to yourself. However, make sure you are able to meet obligations. It is the easiest business exit plan to execute.
• Upon retiring, sell all your shares to existing partners. You will get money from the sale of shares and be able to leave the company.
• Liquidate all your assets at market value. Use the revenue to pay off obligations and keep the rest.
• Go through an initial public offering (IPO) .
• Merge with another business or be acquired.
• Sell the company outright.
• Pass on the business to a family member.

Exit Strategies for Start-ups

Exit plans are commonly used by entrepreneurs to sell the company that they founded. Entrepreneurs will typically develop an exit strategy before going into business because the choice of exit plan has a significant influence on business development choices.

For example, if your plan is to get listed on the stock market (an IPO), it is important that your company follow certain accounting regulations. In addition, most entrepreneurs are not interested in a big-company role and are only interested in starting up companies. A well-defined exit plan helps entrepreneurs swiftly move on to their next big project.

Common types of exit strategies:

• Initial public offering (IPO)
• Strategic acquisitions
• Management buyouts

The exit plan chosen by the entrepreneur depends on the role they want in the future of the company. For example, a strategic acquisition will relieve the entrepreneur of all roles and responsibilities in his or her founding company as they give up control of it.

Exits in Financial Modeling and Valuation

In financial modeling , it’s necessary to have a terminal value when building a DCF model . The terminal value can be calculated in two different ways – using a perpetual growth rate and using an exit multiple. The latter method is more common among industry practitioners and assumes that the business is sold for a “multiple” of some metric, like EBITDA .

In the example of a DCF model below you can see the terminal value section, which assumes the company is sold for 7.0x EBITDA.

Learn more in CFI’s DCF modeling courses online now!

Importance of an Exit Plan

It may seem counter-intuitive for a business owner to develop exit strategies. For example, if you are an e-commerce business owner with increasing revenue, why would you want to exit your company?

In fact, it is important to consider an exit plan even if you do not intend to sell your company immediately. For example:

• Personal health issues or a family crisis : You may be affected by personal health issues or experience a family crisis. These issues can take away your focus on effectively running the company. An exit plan would help ensure the company will be run smoothly.
• An economic recession: Economic recessions can have a significant effect on your company and you may want your company to avoid assuming the impact of a recession.
• Unexpected offers: Large players may look to acquire your company. Even if you do not have any intentions of immediately selling the company, you would be able to have an insightful conversation if you have thought of an exit plan.
• A clearly defined goal: By having a well-defined exit plan, you will also have a clear goal. An exit plan has a significant influence on your strategic decisions.

Additional Resources

Thank you for reading CFI’s guide to developing an Exit Strategy. To keep learning and advancing your career as a financial analyst, these CFI resources will be a big help:

• Corporate Venturing
• Angel Investors
• Liquidation Value
• Valuation Methods
• See all management & strategy resources

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How to Develop a Business Exit Strategy [+ Templates]

Written by: Idorenyin Uko

No matter how successful your business is, you should plan for the day you move on from the start. At some point, you’re going to either sell or retire and pass it on to a successor.

However, most owners need to be more knowledgeable when it comes to exiting their business. William Buck’s 2019 Exit Smart Survey Report shows that about 53% of entrepreneurs don’t actually have an exit strategy in place.

An exit strategy defines how you will exit your business, providing guidance on how to sell your company or handle financial losses if it fails. In addition, it gives you a clear direction on what steps to take to ensure a successful transition.

This article will take a deep dive into how to develop a business exit strategy for your company. We’ll also share customizable templates you can use along the way.

Table of Contents

What is a business exit strategy, benefits of an exit strategy, 8 templates to support your business exit strategy, types of exit strategies, how to develop a business exit strategy, when to use an exit strategy, business exit strategy faqs.

• An exit strategy for a business is a plan created by an investor or business owner to transfer ownership of the company or shares to another investor or company.
• Having an exit strategy helps you make better decisions, amplifies your ROI, makes your business attractive to investors and ensures smooth transitions.
• The main types of exit strategies are mergers & acquisitions (M&A), selling your stake to a partner or investor, family succession, acquihires, management and employee buyouts, leveraged buyouts, initial public offering (IPO), liquidation and bankruptcy.
• 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.
• Visme provides templates for creating a robust business exit strategy , checklist, investor pitch, succession plan, press release, communication plan and more.

A business exit strategy is a strategic plan for a business owner, trader, investor or venture capitalist to sell their company or shares to another company or investor. Having a deliberate exit strategy helps owners generate maximum value from liquidating their assets.

In cases where the business is unsuccessful, an exit plan helps the owner reduce losses or transfer them to another party. A venture capitalist may also utilize an exit strategy to prepare for a cash-out of their investment.

Common exit strategies include initial public offering, mergers and acquisitions, liquidation, management or employee buyout and transfer to a successor.

Exit Strategy Options: Closing vs Selling

When weighing your exit options, you're going to have to choose between selling to a new owner or closing the business.

Selling to a new owner is a win-win. You'll make money while the buyer can start operations without a huge upfront investment. If there's a financing agreement, the buyer can spread the payment over a period of time. However, the downside of selling is that employees may be affected.

The second option is closing shop and selling assets as quickly as possible. While this method is simple and quicker, the proceeds only come from the sale of assets. These may include real estate, inventory and equipment. Also, if you have any creditors, the funds you generate must be paid to them before you can pay yourself.

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 Strategic Business Plans and Decisions: With an exit in mind, you will be more likely to set goals and make strategic decisions toward your expected business outcomes.
• Maximizing Your Return on Investment: When it comes to exiting, timing is key. Having a business plan exit strategy enables you to sell when market conditions are favorable, amplifying your ROI.
• Making Your Business More Attractive to Investors: Potential buyers value businesses with planned exit strategies because they demonstrate a commitment to long-term sustainability.
• Working Towards Business and Professional Goals: Executing an exit strategy that increases your business’s value and potential can prevent negative consequences of exiting, like bankruptcy.
• Revealing the Best Selling Situation: Planning your exit strategy requires an in-depth analysis of finances, market dynamics, competition and positioning. This helps you value your business and understand the best-selling situation.
• Ensuring a Smooth Transition: Exit strategies outline all roles and how they contribute to operations. With every employee and stakeholder informed about their responsibilities and actions, transitions are smooth and predictable. You can minimize disruption and maintain continuity during times of change.
• Implementing an Effective Succession Plan: For business owners, an exit strategy can be a part of company succession planning . This ensures a smooth transition of ownership or management. Be it to family members, existing partners, or external parties.

Executing a business exit strategy involves many moving parts. By using templates, you can effectively articulate your plan and ensure nothing slips through the cracks.

Keep in mind that you can tailor these to suit different industries, business sizes and exit goals.

Company Exit Strategy Presentation

When approaching investors or stakeholders to share your exit intent, you need a pitch deck. And we’re not just talking about “run-of-the-mill” decks. Use this orange-themed, captivating exit strategy template to wow investors and stir their excitement about the deal.

This presentation helps you explain what your business is about, how much you’ve grown, what you’ve achieved and the team behind the dream. It also paints a positive picture of the future. This business exit plan template utilizes charts, widgets and data visualizations to capture the timeline, traction and financing in an engaging way.

Do you have more evidence to support your presentation? You can link to your valuation, financial, legal and operations documents using Visme’s interactive features .

If you're racing against the clock and need to create your presentation quickly, use Visme's AI presentation maker . Input a detailed prompt, choose your preferred design and watch the tool produce your presentation in seconds. You also have the freedom to customize text and design with the extensive array of features and tools in Visme's editor.

Business Exits Checklist

Business exits (or even mergers and acquisitions) are complex. Without a checklist, you could miss out on some key steps. This business exit strategy checklist is a must-have if you want to increase your likelihood of success. It covers various aspects, from financial readiness and legal compliance to communication strategies and post-exit planning.

Think of it as a roadmap with essential steps and considerations to help you achieve a smooth and successful exit. Feel free to use it as is or customize it with the help of Visme’s intuitive editor. When working on this business exit plan template, you can change fonts, text and background colors to fit your branding.

Business Exit Strategy

Use this strategic plan template as a framework to guide you throughout the business exit journey. It captures all the key components of an exit strategy, helping you decide what’s best for your business.

Use it as a guide to navigate various aspects such as financial planning, market analysis and stakeholder communication.

Since multiple stakeholders are involved in the exit planning process, this exit strategy for business can serve as a collaborative tool. With Visme’s collaboration feature , team members can contribute to and review it individually or in real time. (Check out the video below to see how it works.)

The best part is that you can even deploy the Workflow tool for better task management among stakeholders. You can assign different sections, set deadlines, track progress and make corrections—all in one place.

Merger Press Release Templates

Announce your company's recent merger in a polished and professional manner using this blue-themed template. It features dynamic content blocks where you can easily place your text and visual elements.

The blue mixed with a yellow sprinkle makes your news visually appealing and engaging. Leave a lasting impression on your audience with visuals of your product or team members.

The best part of using Visme? You can generate content ideas or drafts for your press release using Visme’s AI Writer . The tool also comes in handy for proofreading your press release.

You can replicate or customize this merger press release for different channels using the Dynamic Fields feature .

Ownership Succession Plan

An ownership succession plan is critical for the success and stability of any business. Craft a well-structured plan for transferring ownership with this ownership succession plan template.

This customizable template addresses every aspect of the transfer process, like ownership structure, transition timeline and financial implications. It also captures an ownership checklist, a succession plan for retirement, a consideration sheet and a successor development plan.

Use this document to facilitate effective communication among stakeholders, including the owner, management, board of directors and employees.

Edit this template to align with your brand identity and maintain a smooth operational flow during the transition. Feel free to beautify the document with icons , stock photos and videos from Visme’s library. You also have the option of generating unique visuals with Visme’s AI image generator .

General Due Diligence Report

Give your business a huge advantage on the negotiation table with this general due diligence report template. Presenting a stunning report makes your business more attractive to potential buyers. It also eliminates surprises during negotiations and expedites the overall deal execution process.

This report presents a clear picture of the company's assets, liabilities, financial performance and growth prospects. It also captures information about your company’s legal and regulatory compliance, operations and team.

After publishing your report, you can monitor traffic and engagement with the Visme analytics tool . It provides insights into your report’s views, unique visits, average time, average completion and more. Monitoring how readers consume the report will help you steer your conversations in the right direction.

Financial Due Diligence Report

​​Instill confidence in potential buyers, investors and other stakeholders with this financial due diligence report. It paints a clear picture of your company’s financial health, controls and systems. This template covers key sections like the company overview, financial analysis, income statement, taxation analysis and recommendations.

The beautiful thing about creating this report in Visme is that you don't have to type in your financial figures manually. You can easily connect to third-party sources and import financial information into your report. As you make changes to your data, your table or chart will also be updated in real-time.

Download this template to share with your recipient in different formats, including PDF, HTML, video and image. Or simply generate a shareable link for online sharing. This means you can cater to different reading preferences–whether print or digital.

Legal Due Diligence Report

Establish compliance with all relevant laws and regulations associated with the transaction with this report template. It offers both the buyer and seller an extensive understanding of the exit process. This report captures key sections, such as:

• Legal and regulatory compliance
• Privacy and data sharing
• Terms of Service and Licensing
• Data retention

With this report, you can identify potential legal risks and liabilities. Not only does it ensure a smoother exit process, but it also helps you make better decisions.

Keep your report on brand with Visme’s brand wizard . Just input your URL; the tool will pull in your brand assets and recommend branded templates. You don't have to manually import them into the Visme editor.

Whether you're mapping out a business strategy or creating a plan for a business exit, we’ve created this ultimate list of strategic planning examples and templates to help you.

There are eight major examples of exit strategies for entrepreneurs, startups and established businesses.

Made with Visme Infographic Maker

 Ultimately, the strategy you select will depend on your own financial, personal and business goals. We’ll also touch on some of the pros and cons of each.

Merger and Acquisition (M&A)

This business exit strategy example involves merging with or selling your company (or a portion) to another company. The acquiring company may be a competitor, a supplier, a customer or a private equity firm. If you’ve built a strong brand, technology, or customer base, a Merger and acquisition exit strategy can provide an attractive exit option for your company.

• Creates economies of scale and increases efficiency by combining resources and capabilities.
• Enhances competitiveness and market position through expanded offerings and increased market share.
• Provides access to new markets, technologies and talent.
• Generates synergies and cost savings through combined operations.

Disadvantages

• Integration challenges and cultural differences can lead to significant difficulties in realizing expected benefits.
• High transaction costs and significant investment are required.
• Risk of overpaying for the acquired company or assets.
• Potential loss of focus on core business activities during integration.

Streamline your M&A exit strategy with the help of this customizable template. It captures every aspect of the transition process, including assessment, preparation, valuation and negotiation.

Exit Strategies for a Partner or Investor

Selling your stake to a partner or investor can be a strategic exit plan, particularly if you are not the sole business owner. In this shareholder exit strategy, you have the opportunity to sell your stake to a familiar entity, often referred to as a 'friendly buyer,' such as a trusted partner or a venture capital investor.

• Allows the business to continue operating smoothly with minimal disruption to daily activities, ensuring a consistent flow of revenue.
• A 'friendly buyer' already has a vested interest in the business and a commitment to its long-term success. This can contribute to the ongoing stability and growth of the company.
• Identifying a suitable buyer or investor for your share of the company can be a challenging task.
• When selling to someone with a close relationship, personal ties may influence negotiations. Hence, the process may not be as objective as with an external party.
• The close relationship with the buyer may make you lower the asking price.

Family Succession Exit Strategy

This exit strategy for a small business involves passing ownership and leadership of a business from one generation to the next within a family.

• Maintains the business's continuity and legacy with a sense of tradition.
• Successors often deeply understand the business because of their long-term affiliation.
• The successor’s familiarity with existing relationships, suppliers and customers can contribute to the business’s stability during the transition.
• Family dynamics can lead to conflicts of interest and an inability to make impartial business decisions.
• Successors may lack the necessary skills or experience to steer the business.
• Non-family employees may perceive favoritism or a lack of equal opportunities, causing dissatisfaction within the workforce.
• Narrow-mindedness within the family may hinder the introduction of new ideas and innovations.

Acquihires Exit Strategy

For this exit strategy in business, a larger company acquires a smaller company primarily for its talent and intellectual property. This allows acquiring companies to easily tap into the experience and expertise of skilled employees and innovative minds.

• Acquiring a team with a proven track record mitigates some of the risks associated with starting a new project or entering a new market.
• Provides a quick way for companies to onboard skilled and talented hires.
• The acquired team brings fresh perspectives, ideas and innovations to the acquiring company.
• Integrating a team already familiar with the industry can accelerate product development or market entry.
• Merging different cultures may lead to conflicts and clashes that affect team morale.
• Getting the acquired team acquainted with existing workflows and processes may present difficulties that impact productivity.
• Acquihires can be expensive and there's no guarantee you'll successfully integrate the new team.

Management and Employee Buyouts (MBO)

An MBO occurs when the company's management team purchases a majority stake from existing shareholders. This exit strategy in entrepreneurship allows managers to take control of the business and make decisions without external interference. MBOs can motivate employees, align interests and facilitate succession planning.

• Increased chance of success since the management team is already familiar with the company's operations, culture and challenges.
• MBOs can provide continuity in leadership, ensuring a smooth transition without significant disruptions to daily operations.
• Enable more agile decision-making processes for a smaller group of decision-makers.
• F​​unding an MBO can be expensive. The management team may face difficulties raising the necessary capital to acquire the company.
• MBOs may lack the financial resources and expertise that external investors or buyers could bring to the company.
• Insiders may have a biased view of the company's value and potential, leading to overvaluation and unrealistic expectations.

Here's a template you can use to manage the transition process for your MBO exit strategy. The presentation template covers key aspects such as employee roles and ownership, the board’s role, the process, transition planning and management.

Leveraged Buyout (LBO)

An LBO is similar to an MBO but involves borrowing funds, equity and cash to finance the purchase. The assets of the purchased and acquiring companies are used as collateral for the loans. Private equity firms often use this method to acquire companies with the potential for high returns through financial leverage.

• If the acquired company performs well, the return on the equity investment can be substantial.
• LBOs allow investors to control a larger enterprise with less initial investment.
• Private equity firms involved in LBOs often bring operational expertise and efficiency.
• Private equity ownership supports strategic decision-making since the ownership structure is often less bureaucratic.
• If the acquired company's performance declines or interest rates rise, the debt burden increases.
• Capital structure of LBOs may limit the company's ability to generate cash for other purposes.
• LBOs are influenced by market conditions and economic downturns can impact profitable investment exits.

Create a robust strategy plan for your leveraged buyout exit strategy using this template.

Initial Public Offering (IPO)

An IPO exit strategy is when a privately held company goes public by issuing stocks to raise capital. This provides an opportunity for early investors and shareholders to cash out their shares and realize a return on their investment. However, going public also means increased scrutiny, regulation and pressure to perform well.

• Provides liquidity for existing shareholders, including founders and early investors.
• Enhances the company's public profile and can attract new investors.
• Preparing and executing an IPO can be an expensive and time-consuming process.
• The company becomes subject to rigorous regulatory requirements and market fluctuations.

Considering how challenging executing an IPO is, this template is your trusted ally. The green fashion-themed design makes it visually appealing. The pictures bring more context to the company’s products or offerings. This strategy plan accounts for every single aspect of a successful exit via IPO, including objectives, the preparation phase, timing, IPO execution and post IPO.

Liquidation

Liquidation exit strategy involves winding down operations, selling off assets and distributing proceeds to shareholders. This option is usually considered when a company is no longer viable or has reached the end of its life cycle.

• Compared to other exit strategies, liquidation is a simpler process.
• Proceeds from liquidation can be used to settle outstanding debts, liabilities and other financial obligations.
• Allows you to sell and realize value from individual assets rather than the entire business.
• Often results in lower returns for shareholders compared to selling the business as a going concern.
• The liquidation process, especially if it involves bankruptcy, can damage the reputation of the business and its stakeholders.
• Assets can be sold below fair market value due to urgency.

Bankruptcy is a legal process where a company unable to pay its debts seeks protection from creditors. Depending on the circumstances, it can result in restructuring, refinancing or liquidation. While not always ideal, bankruptcy can provide relief and allow for a fresh start.

• Provides a legal process for discharging or restructuring debts.
• Triggers an automatic stay and offers legal protection from creditors.
• Facilitates the orderly liquidation of assets. This ensures creditors get fair treatment and maximizes the value of assets for distribution.
• Has a severe impact on the credit ratings of both the company and its owners.
• The court takes control of the company's assets and may appoint a trustee to oversee the process.
• Proceedings involve legal and administrative costs that can further erode the company's assets.
• Often results in job losses and career disruptions for employees.

1. Determine When You Want to Leave

The first thing you should do when doing business exit planning is figure out how long you want to stay involved.

If it’s a voluntary exit, you can approach it in two ways. You can list goals that should be achieved before you exit or pick a date in the future and work towards it.

For example, you can decide to sell after hitting a certain milestone in revenue, profitability, growth, or liquidity. You can also determine whether you’ll proceed with the sale even if you don’t hit those targets.

The target date for this transition can change. But without a deadline, you won’t treat the plan with priority or commit resources to achieving it. Once you have a date, you can work toward making your business more valuable and attractive to potential buyers.

2. Define What You Want to Achieve

Ask yourself what you want to achieve from your exit strategy. These could be financial goals, legacy preservation or pursuing new opportunities.

Do you want to retire or will you pursue other opportunities? Do you still want to maintain control over the business? Are you hoping to preserve your legacy?

If you’re exiting a long-term business, succession planning or management buyouts may be your best bet. But if you’re looking to cash out or explore synergies, you can sell, merge or even launch an IPO.

3. Identify Potential Buyers or Successors

The potential buyer for your business will depend on your industry, financial performance, strategic fit, market position and other factors.

Create a profile of the type of investor that may be interested in acquiring your business.

For example, your buyer may be a bigger competitor or venture capital fund that can maximize value from your business model. It could also be a rival company that finds your new product line perfect for cross-sells. You may also be approached by rivals who want your intellectual property, staff or customer base.

The next step is to list businesses that fall into this category. If you're looking to sell your business, consider potential buyers who have expressed interest in your industry or have a track record of acquiring similar companies.

However, if you plan to pass your business down to family members, identify suitable candidates within your family who have the necessary skills and experience to run the business successfully.

4. Evaluate the Current Value of Your Business

The next step is to determine what your business is actually worth. This may involve a business valuation, considering factors like revenue, profits, assets, market position and growth potential.

We recommend hiring external auditing companies or professionals to value your business and conduct due diligence. Not only will you get a due diligence report , but you'll also get a transparent and impartial valuation of your finances.​​

Understanding your business's worth will help you set expectations for buyers and negotiate a fair deal.

In addition to valuing your business, do your due diligence. Organize all of your company and legal documents, including:

• Permits/licenses
• Employee data and payroll information
• Vendor and customer contracts
• Asset lists
• Insurance information
• Liabilities
• IP documentation

5. Increase Business Value and Improve Performance

Now that you know the value of your business, what's next?

Ask yourself: Does it align with the exit strategy goals? Can I achieve my exit strategy goals with this current valuation? What can I do to increase the value of the business or make it more appealing to investors?

Keep finding areas for improvement across your business. This could involve expanding your product or service offerings, entering new markets or implementing new technologies.

Focus more on areas that will make other businesses want to acquire or merge with you. If you haven’t found those value drivers yet, it’s about time you did. Similarly, figure out the biggest drawbacks and fix them.

For example, if you have a strong financial track record, consistent profitability and positive growth trends, you’re likely to attract potential buyers. Your proprietary technology, patents, intellectual property, customer base, supplier relationship and geographic presence may just be the reasons other companies find your business valuable.

Another great practice to increase value is to do a competitor analysis. Analyze the competitors in your market. Where are they doing better than you? How can you beat them in their game? Acting on this intel can increase your chances of finding a suitable buyer and negotiating a favorable deal.

6. Assemble a Solid Team to Manage the Process

Buyers will come to the negotiation table with a solid team. You should assemble a great team as well.

You should also do this if you’re creating an exit strategy for startups.

When it comes to selling your business or liquidating shares, you’ll need professional guidance to navigate the complexities and emerge with confidence. The key is to surround yourself with trustworthy individuals who understand the intricacies of selling.

These professionals should have a proven track record and a wealth of knowledge to handle various situations associated with exits. Some professionals you should consider adding to your team include:

• Accountants
• Business brokers
• Corporate lawyers
• Merger and acquisition advisors
• Financial experts
• Marketing experts
• Information and communication experts

7. Write an Exit Plan

Establish a succession plan that outlines how you’ll ensure business continuity. This should outline how leadership will be transferred, including a clear chain of command, roles and responsibilities and a timeline for the transition.

Once you’ve decided to exit your business, gradually remove yourself. If operations, revenues and survival are 100% tied to the owner, that becomes a red flag for buyers.

Choose new leadership and start transferring some of your responsibilities to them while you finalize your plans. Establish a set of standard operating procedures (SOPs), ideally in written form, that would enable any buyer to keep the business in gear by following a set of instructions.

If you already have a documented operation strategy, transitioning new responsibilities to others will become seamless.

Ultimately, your business exit plan should capture these elements:

• Valuation of the business
• Timeline for your exit
• Financial preparedness
• The most suitable exit strategy
• General due diligence report
• Post exit involvement (consultancy roles, advisory positions, or other forms of ongoing involvement)

We've shared dozens of business exit plan templates. Alternatively, you can create one in minutes using our AI document generator . 

8. Create a Communication Plan

Plan how and when you will communicate the exit to customers, employees and other stakeholders.

Create a communication plan to manage this process. It can minimize disruptions and maintain the confidence of key stakeholders.

Once you have established a solid succession plan, communicate this information to your employees. Be prepared to address any concerns or questions they may have. Notably, approach this communication with empathy and transparency so your employees feel heard and valued throughout the process.

Finally, inform your clients and customers. If your company will continue with a new owner, make the transition smooth by introducing them to your clients. However, if you are shutting down your business, point your customers to alternative options.

Here’s a communication plan you can use for this step.

9. Develop a Contingency Plan

During the exit process, things could go south. For example, unexpected events—like market condition changes, delays or disputes with stakeholders—could impact the exit process.

That’s why you need a contingency plan to address these risks. Evaluate the potential impact and likelihood of each risk you’ve identified. Then, you can develop strategies to mitigate their effect.

Let’s say there’s a sudden change in market conditions. Your contingency plan could be to diversify your revenue streams or implement cost-cutting measures. Ensure the strategies are feasible, practical and aligned with the overall business goals.

10. Create a Data Room

The data room consolidates comprehensive information on financial results, key business drivers, legal affairs, organizational structure, contracts, information systems, insurance coverage, environmental matters and human resources issues such as employment agreements, benefits and pension plans.

As soon as the Confidential Information Memorandum (CIM) is drafted, start compiling information for the data room, as it supports much of the document.

It is important to balance the amount of information and the level of detail provided in the data room. The information should be sufficient to enable buyers to determine the asset's value and complete their due diligence.

However, it is equally important to limit the amount of sensitive or competitive information disclosed to anyone other than the ultimate purchaser. Achieving the right balance often requires discussions between sellers and their advisers.

There are different instances where you may need to use an exit strategy. Let’s look at a few of them.

• Retirement: If a business owner is approaching retirement age, an exit strategy can help them plan for the transfer of ownership or sale of the business.
• Profit Objective : An angel investor can sell their stakes and exit, achieving a specific profit objective.
• Mergers and Acquisitions: If a business owner receives an offer to purchase their business, an exit strategy can help them negotiate the terms of the sale and ensure a smooth transition.
• Financial Losses: An exit strategy is a great way to liquidate losses from a business with financial challenges or heavy debt burdens.

Other situations that can necessitate developing an exit strategy for startups and corporations include

• Change in personal circumstances such as a divorce, illness, or death in the family.
• Shift in business direction or industry changes.
• Lack of growth opportunities.
• Legal or regulatory issues.
• Planning for succession or transition to new leadership.
• Aligning with the investment horizon or expectations of investors or stakeholders.

Q. What Is the Best and Cleanest Way to Exit the Business?

The best exit strategy depends on your personal goals, financial needs and the specific circumstances of your business.

However, a clean exit can provide peace of mind and financial security. This type of exit involves a smooth transfer of ownership where you receive your payout and know your business will be left in capable hands.

With a clean exit, there’s little or no disruption to business operations. The owners maximize the value of their business and realize their financial goals.

Q. What is the Master Exit Strategy?

There isn't a single "master exit strategy" that universally applies to all businesses. Different businesses may benefit from different exit strategies. In addition, a small business exit strategy may not work for a larger company.

When exiting your business, deploy a strategy that helps you maximize your company's value and benefits all stakeholders.

Q. What Are the Two Essential Components of an Exit Strategy?

The two essential components of an exit strategy are:

A clear definition of the business owner's objectives: This includes identifying what the owner wants to achieve through the exit, such as maximum financial return, continued legacy, or minimal disruption to employees and customers.

A thorough assessment of the business's current situation: This includes evaluating the company's financial health, operational performance, market position and competitive landscape.

How Visme Can Equip Your Company & Team

There you go. This article has covered the basics of how to prepare an exit strategy.

Exiting a business you’ve built or invested in can be emotional and overwhelming. But doing it the right way pays off.

Planning a proper exit strategy in entrepreneurship requires diligence in terms of time and care. That’s why you need a tool like Visme that helps you manage the entire process—from planning to documentation to execution.

Visme provides templates for creating a robust business exit strategy , checklist, investor pitch, succession plan, press release and communication plan.

That’s just the tip of the iceberg regarding what you can create in Visme. With a rich library and cutting-edge features, teams can collaborate and create stunning business documents.

Sign up to discover how Visme can help you execute your business exit strategy.

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About the Author

Business Exit Strategy Planning

Written by Dave Lavinsky

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.  

Other Helpful Business Plan Articles & Templates

How to Plan Your Exit Strategy

Candice Landau

8 min. read

Updated April 17, 2024

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.

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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.

Candice Landau is a marketing consultant with a background in web design and copywriting. She specializes in content strategy, copywriting, website design, and digital marketing for a wide-range of clients including digital marketing agencies and nonprofits.

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• Business exit strategies

What is an exit strategy in business?

Types of exit strategies, acquisition, liquidations, how to plan a successful exit, organize your financial statements, due diligence preparation, communicate with investors and stakeholders, communicate with employees and customers, secondary transactions before an exit.

The founder journey doesn’t stop after you’ve launched your startup and raised multiple rounds of venture capital. Whether your sights are set on exiting through an acquisition, merger, initial public offering (IPO), or another path, having an exit strategy in place early on can help guide your startup to success well before you ring the opening bell at NYSE or sign the final paperwork for a big merger. 

An exit strategy is a business plan that outlines how and when a founder, CEO, investor, or other stakeholder will liquidate a company. There are several types of liquidity events you may plan for, including: 

Public offerings

Acquisitions

Below is a basic overview of the most common exit strategies available for private companies. We recommend consulting with your startup lawyer or other advisor to help comb through the different options—and to help you weigh potential buyers.

Going public via an IPO is the ultimate dream for most entrepreneurs and business owners. But a traditional IPO isn’t for everyone—and in fact, most private companies don't exit through an IPO. A company can also list its shares publicly through a direct public offering or a SPAC (special purpose acquisition company) .

Depending on your goals, such as price-per-share, avoiding lock up periods, or keeping a set business valuation, one type of public offering will be more beneficial. 

→ To learn more about the differences between traditional IPOs, direct listings, and SPA, read our IPO Readiness Guide . 

Want to download a free IPO readiness checklist to maximize your chances of a successful public offering?

Download your free IPO Readiness Checklist here:

A merger is when two or more companies combine to become one (they might adopt a new name in the process). In a reverse triangular merger (the most common merger structure), the buyer forms a new subsidiary that merges with the target company, resulting in the target becoming a subsidiary of the buyer.

The biggest prep work needed for an acquisition is determining the deal structure. There are two common structures for acquisitions:

Stock sale: This happens when the target company’s stockholders sell their stock to the buyer, such that the target company becomes a wholly owned subsidiary of the buyer. In some cases, a stock sale could involve the buyer absorbing the target so the target ceases to become a distinct entity.

Asset sale: This happens when the target company sells all or most of its assets to the buyer, then dissolves and pays the proceeds of the sale to the stockholders in the company's wind-down process. 

→ Learn more about asset sales and stock sales

Private equity acquisition

Private equity buyers acquire business across the financing landscape— bootstrapped , venture capital backed, private equity backed, carveouts (public and private), among others.

Leveraged buyouts (LBO)  are the most common private equity investment strategy. In an LBO, the private equity firm acquires a majority stake in the company, using equity and debt . This capital typically buys out existing stakeholders, and goes on the company’s balance sheet to fund growth. The portfolio company is then responsible for paying back that debt and interest through cash resulting from the operational improvements made during the private equity firm’s ownership tenure.

Not all private equity firms use debt. Growth equity or growth buyout firms may fund transactions with minimal to no leverage, allowing the company to continue investing in growth.

Liquidation is a conversion of assets to cash or cash equivalents by selling to a consumer. This is typically an option if your business is insolvent and isn't able to pay its creditors. The liquidation process also can help with negotiating the debt down with those creditors as well as help to avoid filing for bankruptcy. When your business is liquidated, any remaining assets are paid to creditors and shareholders. Although not as common, liquidation can also be a voluntary option. 

Liquidation is also an alternative to (and in most instances, is easier than) attempting to sell your business. The sale of a business requires the buyer to purchase all assets, which can become a more difficult and complex sale.

Liquidation vs. dissolution 

Liquidation is part of the process of ending a business. However, if your business entity is an LLC or corporation , it will continue to exist after a liquidation and will still be subject to obligations such as annual filings and taxation requirements .

Dissolution is the process of terminating a legal business entity. When the business is dissolved, it will no longer have compliance obligations within the state in which it was incorporated or registered. 

Once you’ve determined which exit option is right for you, here are some general steps you can take to prepare. Carta can help support you during this process when it comes to deal modeling, due diligence, IPO preparation, liquidity solutions, and tax planning. 

Ahead of term sheet negotiations, it’s important to understand your company’s anticipated returns based on deal size and other factors so you can in turn understand your breakeven valuation. Settle any debts and address any other outstanding obligations.

You can prepare your company for an M&A deal by familiarizing yourself with what sorts of documents will be requested by the buyer and what happens during their due diligence. The due diligence process may involve sharing disclosures with potential buyers, additional financial audits and reporting, and negotiation conversations between management teams. Some due diligence processes take a couple of weeks, while others take months.

→ See an example of a M&A due diligence request list, provided by one of Carta’s partner law firms, and a leader in the M&A space, Goodwin.

Investor communications are always important, but especially leading up to an exit event. Your investors , board members , and other key stakeholders want to know how they’ll be paid out and what their expected ROI is. If you have employee owners, you may want to inform them at this time, ahead of customers.

Depending on the size and scope of your company, you may also want to share your exit plans with employees and customers ahead of time to ensure a smooth transition. This should only be done after due diligence, board approval, and other key steps are completed. 

Companies can run structured secondary transactions to allow for liquidity in their shares for their stockholders at any time, but there are strategic opportunities to do so—for example,  within 90 days of a primary funding round or when a cohort of early employees fully vest in their initial stock grants. If an exit is still far away, you may choose to use secondary transactions— like tender offers — as a tool to clean up your cap table by consolidating your stockholder base.

In addition, private secondary transactions can offer shareholders an opportunity to liquidate some or all of their shares while the company is still private. Liquidity can allow early investors to secure a return on their investment and can give employees the chance to cash in their equity compensation .

Related Content

Business exit strategy definition, types, and use cases

Table of content.

Having a thoughtful exit strategy shows that a business owner is prepared for the future and is focused on ensuring the long-term success and sustainability of their company. However, according to a survey conducted by the Business Enterprise Institute, only 20% of owners have created written plans to transfer ownership.

The article will offer insights to startup founders, small business owners, and established company leaders about the importance of developing an exit strategy, outlining key benefits and steps involved. 

What is a business exit strategy?

A business exit strategy outlines the steps a business owner needs to take to sell their ownership in a company to investors or another company and generate the maximum value.

There are several different exit strategies, including types like strategic acquisitions, an initial public offering (IPO), management buyouts (MBOs), liquidation, bankruptcy, selling a stake to a partner or investor, or passing the business on to a family member.

It’s recommended to develop an exit strategy early in the business planning process , ideally during the initial stages of forming the company. This is because this strategy can impact future business plans and influence key decisions regarding growth, investment, and operational strategies.

For instance, if the exit strategy business plan is to pass the business on to family members, the focus may be on creating stable day-to-day operations and a strong brand reputation. In contrast, if a business owner aims to sell their business within, say, five years, they may focus on rapid growth and building tangible assets to increase the company’s valuation.

In fact, one of the most important parts of every thoughtful exit strategy is business valuation , as it determines the company’s fair price. Understanding the current and potential future value of the business helps to make the right decisions regarding when and how to exit. 

It’s also important to note that business exit planning can include two subsets — investor and venture capital exit strategies:

• Investor exit strategy . This is a plan developed by investors, such as angel or private equity investors, to exit their investment in a particular company. The primary goal is to achieve a favorable return on investment by selling their stake in the company. A business exit strategy, in this case, should always be part of a wider investment strategy.
• Venture capital exit strategy . Another business exit strategy option can be applied to an early-stage company or high-growth business backed by venture capital funding. In this case, VC investors develop a pre-planned exit to achieve a return on their investment within a specific time frame, often around five years.

Benefits of a business exit strategy

Let’s explore why developing a business exit strategy is always a good idea.

1. Maximizing value

A well-defined exit strategy helps maximize the value of your business by focusing on growth, profitability, and building tangible assets. This, in turn, will lead to a higher sale price or better terms during a transition.

Example: WhatsApp, a messaging app, focused on user growth and engagement before its acquisition by Facebook for $19 billion in 2014. This strategic approach maximized the company’s value and resulted in a lucrative exit for its founders and investors.

2. Mitigating risks

An exit strategy allows business owners to mitigate potential risks associated with industry changes and unattractive market circumstances, protecting the value of their businesses.

Example: Tesla, the electric car manufacturer, diversified its product offerings and revenue streams beyond vehicles by venturing into energy storage and solar energy solutions . This diversification strategy helped mitigate risks associated with fluctuations in the automotive industry.

3. Facilitating succession planning

By outlining a clear exit plan, you can facilitate smooth succession planning and ensure a seamless transition of ownership or management, minimizing disruptions to operations.

Example : Walmart, a retail industry leader, demonstrated effective succession planning . When Sam Walton retired in 1988, his son, Rob Walton, became a chairman, prioritizing expansion and technological advancement. In 2015, Rob Walton smoothly transitioned leadership to his son-in-law, Greg Penner.

4. Enhancing investor confidence. Having a well-defined exit strategy increases investor confidence, as it demonstrates strategic planning and commitment to maximizing returns. This, in turn, facilitates fundraising and growth opportunities.

Example: Airbnb clearly outlined its potential exit strategies, including IPO. This transparency and strategic planning boosted investor confidence, leading to a successful IPO in 2020 .

What types of business exit strategies are available?

The selection of an appropriate exit strategy is influenced by a few different factors, such as the entrepreneur’s goals, market conditions, and the business growth strategy. Each strategy comes with its own set of advantages and disadvantages, making it crucial for company owners to carefully evaluate their options before making a decision.

Business exit strategy examples

Let’s also explore the most suitable exit strategy business plan examples for different company types:

• Startup exit strategies Startup exit strategies depend on factors such as the company’s growth trajectory, market conditions, investor preferences, and the founder’s long-term goals. The most common methods include an IPO, a strategic acquisition, or a management buyout.
• Small business exit strategy The best exit strategy for a small business always aligns with the owner’s financial objectives, long-term vision, and the company’s market position. Small business owners may opt for options like selling the business to a competitor, transitioning ownership to a family member, or pursuing a management buyout.
•  Larger company exit strategy The owners of established businesses may go for a combination of options tailored to maximize value. This may include a business sale to a strategic buyer, an IPO, or a management buyout.
• Family-owned business exit strategy Succession planning and management buyouts are common strategies for family-owned businesses to ensure a successful transition and preserve legacies.

8 most important steps to develop your exit strategy

A survey of business owners conducted by the Exit Planning Institute shows that just 20% of businesses put up for sale successfully find buyers. Among the businesses that manage to sell, 75% express significant regret within one year of leaving their business.

That’s why it’s so important to proactively develop an exit plan and facilitate the transition to a new business owner. Here are key steps to take:

• Setting exit timelines. Establish clear timelines for your exit strategy, outlining specific milestones and deadlines. Consider factors such as market conditions, personal goals, and financial targets to determine the optimal timing for your exit.
• Documenting information. To ensure a smooth and successful exit strategy, it’s important to maintain all important documents related to your business, including financial statements, financial strategies, contracts, employee information, organizational structure, and legal files.
• Identifying potential buyers. Conduct market research to identify potential buyers for your business. Develop detailed buyer personas to understand their motivations, preferences, and acquisition criteria. Tailor your exit strategy to attract and engage with these prospective buyers effectively.
• Building valuable assets . Focus on developing and enhancing valuable assets within your business, such as proprietary technology, intellectual property, and customer relationships. Invest in strategies that increase the overall attractiveness and value of your business to potential buyers.
• Improving business performance. Continuously monitor and improve key performance indicators (KPIs) across various aspects of your business, including revenue growth, profitability, operational efficiency, and market competitiveness. Implement strategies to optimize business operations and maximize financial performance to attract potential buyers.
• Chasing profitable growth. Explore new opportunities for revenue growth. For example, you can try to diversify product offerings, expand into new markets, or leverage emerging trends. It’s important to focus on generating new revenue streams and demonstrate the long-term growth potential of your business to potential buyers.
• Delegating responsibilities. Delegate key responsibilities to trusted employees, letting them learn to manage daily operations. Create a strong team able to sustain business continuity and growth, even in the owner’s absence.
• Saving financial resources. Keep some money saved to cover the costs associated with the exit process, including legal fees, transaction expenses, and the services of professional advisors. 

Key takeaways

Let’s summarize: 

• A business exit plan means a plan developed by a business owner or management team to exit or transition out of the business and generate the maximum value from it. 
• The most common types of exit strategies are strategic acquisitions, initial public offering (IPO), management buyouts (MBOs), liquidation, bankruptcy, selling a stake to a partner or investor, or passing the business on to a family member.
• The key benefits of developing a business exit strategy are maximizing value, mitigating risks, facilitating succession planning, and enhancing investor confidence. 
• Steps to take to create a business exit strategy include setting exit timelines, documenting information, identifying potential buyers, building valuable assets, improving business performance, chasing profitable growth, prioritizing customer loyalty, delegating responsibilities, and saving financial resources.

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How to Create an Exit Strategy Plan

From defining success to identifying key areas where you can mitigate your risks, here’s how to chart your way to a successful exit.

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.” 

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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6 actionable steps for preparing your exit strategy.

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Chad Lusco, CEO P3 Services .

As a business owner, you accept there's no such thing as “two weeks’ notice.” Grappling with a transition or succession plan can be challenging and emotional, but you’ll need to prepare an exit strategy well in advance to maximize your ROI and ensure the continuation of your company. 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.

Every business owner needs an exit strategy, but not all exit strategies are right for everyone. You’ll need to spend some time reflecting on what's right for you. There is no right or wrong answer; your exit strategy should allow you to meet your goals—both personal and financial—and your business' needs. Each strategy has its unique set of advantages and disadvantages.

Consider these common types of exit strategies:

Keeps the business in the family by choosing a successor, but can often come at a discounted price to the seller and substantial debt service to the buyer.

• Merger And/Or Acquisition

M&A (via private equity or investment group) may benefit the seller with a higher purchase price, but the business may become part of a larger entity or investment portfolio with a new set of procedures or strategy.

• Strategic

One company (typically a direct competitor) purchases another to acquire its talent and/or book of business, often with the hopes of finding synergies, efficiencies or cost savings through consolidation.

• Friendly Buyer

Involves selling your stake to a partner or investor; often involves minimal disruption to the business, but may not achieve the highest purchase price possible.

2. Strengthen your management team.

In my experience working with small business owners, I’ve found the most common stumbling block is the owner. Often, the owner handicaps their own business by hoarding decision-making ability and failing to establish clear roles and responsibilities for team members. This creates bottlenecks for scaling the business, and the dysfunction becomes far more evident when an exit strategy is considered. Extricating the owner from day-to-day affairs is more difficult in a centralized power dynamic.

To strengthen the management team, begin by providing clarity on your team members’ roles, responsibilities and decision-making authority. It’s also essential to define the organizational structure and key performance indicators (KPIs) for all team members. Once this is accomplished, the next step is to plan for the gradual transfer of responsibilities to prepare the management team for the transition.

Speaking of transferring responsibilities, you may need to choose your successor, particularly if you’re planning an exit strategy that doesn't include long-term seller involvement. Selecting a successor often proves challenging if the candidate is a family member or long-time acquaintance. Be sure the individual you pick is the best suited in terms of skills, experience, education and temperament. It’s often a good idea to turn to an advisory board or consultant for neutral guidance.

3. Streamline your operations.

Are there any operational inefficiencies to iron out or unnecessary expenses to eliminate? Look for ways to improve processes, and be sure to resolve any pending or potential legal liabilities, as well as any outstanding debts.

Some operational challenges I commonly see are a lack of systemization and an inability to provide in-depth data and insights into the business. You’ll want to be able to pinpoint data that potential buyers will be interested in—from year-over-year (YOY) growth to the number of locations served, new customer growth, expansion of existing customer accounts and relationships—the list goes on.

4. Clean up your financials.

Before engaging with potential buyers, ensure your business has clean books that follow generally accepted accounting principles (GAAP).

Additionally, you’ll need to have a clear picture of your numbers—both personal and corporate—so you can head into negotiations with a fair asking price and use your financial performance to justify it.

Be warned, a common mistake entrepreneurs make is running their company so lean that it lacks a strong foundation. Efficiency is important, but running on a skeleton crew can create instability. Avoid trying to squeeze out every dollar of profitability leading up to the sale, as this will restrict scalability and create a questionable succession plan for a potential buyer.

5. Identify your differentiators and key selling points.

Treat potential buyers as you would potential customers and consider what sort of sales pitch you might give them. Ask yourself the following questions:

• What target market does your brand appeal to?

• What are the unique attributes of your products/services/brand?

• Do you have a proprietary method?

• What’s your brand heritage/story?

• What technologies/patents do you have?

• Do you have any endorsements or awards?

Identify your most compelling differentiators and use them to create an elevator pitch. Then, build on that elevator pitch to develop an appealing presentation for potential buyers.

6. Do your due diligence.

Lastly, do your due diligence. Get all of your relevant organizational and legal documents organized, including:

• Vendor and customer contracts

• Permits/licenses

• Financials

• Employee and payroll backup

• Insurance information

• Vehicle and asset lists

In addition, consult a CPA on how to optimize your tax strategy for the sale (don’t expect buyers to offer guidance on your tax situation). Your location, company structure and the structure of the sale can have significant effects on your sale price and valuation.

Preparing Your Exit Strategy

If these steps seem overwhelming, remember that you should have at least five to ten years to execute them. If you’ve held exit strategy planning in abeyance until you’re just about ready to retire, you may want to consider staying at the helm for at least a few more years. This will allow you time to plan adequately for a healthy transition that allows your company and talent to continue to flourish. Your company is your legacy, after all, whether or not it stays in the family.

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Business Exit Strategy: 5 Ways To Leave Your Company (+ Examples)

Planning your business exit strategy is key to selling your business. Get inspiration from these examples to leave your company the right way.

Most of the emphasis on entrepreneurship is placed on starting and growing a business. But an often overlooked and equally vital aspect is having a business exit strategy.

Whether you're trying to sell your business fast or take your time, having a concrete plan matters. Since the future is unpredictable, it's still a good idea to give yourself the option even if you can't see yourself selling right now.

This article will shed light on the importance of this topic. In it, we'll delve into business exit planning while presenting examples. By understanding different types of exit strategies, you'll be able to make informed decisions and safeguard your investments.

What is an exit strategy?

At its core, it is a planned approach to the end or transition of an entrepreneur's involvement in a business venture. It's the process of preparing your business for a change in ownership or a shift in operational leadership.

An exit strategy business plan is initiated due to various reasons. Sometimes it's to cash in on an investment, manage unforeseen market shifts, or address personal reasons like retirement. Either way, it is important to plan with anticipation.

What is the exit stage of a business?

The "exit stage" of a business specifically denotes the phase in which the strategy is executed, leading to the culmination or transformation of the business.

In business exit planning, it's essential to understand that having an exit plan is not only about the endpoint but also about making strategic decisions.

Why planning a business exit is essential

Every business owner needs to start thinking about business exit planning as soon as possible. A well-thought-out exit strategy ensures that you're prepared for inevitable changes.

Failing to plan can have serious repercussions. For instance, unforeseen circumstances such as sudden health challenges or drastic market downturns could force a business exit. Without prior exit strategies in place, such unexpected situations can be devastating.

Starting your exit plan early provides flexibility and allows you to adapt, giving your business a competitive edge. Simply put, it is about ensuring a smooth and profitable journey.

Planning for a smooth transition

Preparing successful business exit strategies isn't a task to be left to the last minute. It's an ongoing process that demands attention to various aspects of your business.

At the heart of your business exit planning is financial readiness. Ensuring your financial statements are transparent, well-documented, and show consistent growth can significantly boost your business's valuation potential buyers . Beyond the books, consider your team. Employee training is crucial.

A well-trained, competent workforce demonstrates to potential buyers a company's ability to continue thriving post-exit. It's a reassurance to potential successors that they're stepping into a smoothly running operation.

Additionally, streamlining operations is another key component of business exit planning. Efficient, lean processes not only maximize profitability but also present your business as a well-oiled machine, ready for transition.

5 types of exit strategies (+examples)

Understanding the different types of exit strategies available is crucial for business owners. Your choice will significantly influence your business's legacy, financial gains, and the company's future. The route you choose as a business exit strategy largely depends on three factors:

• Personal goals
• Nature of the business
• Market conditions

Whether you're seeking the highest financial return, wish to keep the business legacy intact, or are keen on a seamless transition, it's essential to tailor your exit strategy business plan accordingly.

The importance of exit strategy choices can't be overstated, as they shape the future of the company and its stakeholders. Let's delve into five common types of succesful exists:

#1: Sale to a strategic buyer

This exit strategy involves selling your company to a larger company, typically operating within the same industry. It is one of the many common exit strategies. The potential buyers are often seeking to expand their reach, incorporate new technologies, or eliminate competition.

This approach is beneficial as it typically offers a premium on the company's market value, given the synergies the buyer might achieve post-acquisition (this is made by a business valuation). If your business exit planning revolves around a quicker exit with potentially higher financial returns, this might be a preferable route in your business operations.

Example: Salesforce acquires Slack

Salesforce bought Slack . This union merged the capabilities of one the world's leading CRM platforms with a pioneering digital communication tool for business.

This strategy was a win-win for both sides, a strategic acquisition that turned out great. Salesforce bought a tool that fortified and diversified their services, while Slack received more resources to expand their vision. It resulted in a successful exit strategy.

#2: Initial Public Offering (IPO)

An IPO is essentially when a company offers shares to the public on a stock exchange. It's one of the most talked-about types of exit strategies due to the promise of significant financial windfall and prestige. However, an IPO faces many challenges. It demands rigorous financial scrutiny, is expensive, and puts the company under the constant watch of shareholders and analysts.

Example: Facebook Goes Public

In its early days, Facebook was a platform limited to college campuses. As it started expanding its user base and introducing novel features, its valuation skyrocketed.

Facebook made the monumental decision to go public , a proper exit strategy for them. Facebook's IPO was one of the biggest in tech history, with shares initially priced at $38. Their IPO helped them raise $16 billion, which gave the company a valuation at the time of $104 billion.

#3: Management Buyout (MBO):

An MBO involves the company's management team buying the assets and operations of the business. It's an attractive business exit plan for entrepreneurs who wish to see their legacy continue under a team familiar with the company's vision and goals.

The key advantage of this strategy is that it ensures a seamless transition, given that the new owners already have an intimate knowledge of the company. However, it often requires the management team to secure significant financing, which could be a potential hurdle.

Example: Dell Goes Private

Dell Computers embarked on a notable transition . In one of the largest management-led buyouts in tech history, the company's founder Michael Dell, together with investment firm Silver Lake Partners, acquired the PC giant and took it private.

The $24.4-billion deal was the biggest leveraged buyout since the 2008 financial crisis. It allowed the company to reorient its strategy and products without the immediate pressures of public stockholders.

Family succession:

Family succession means the ownership and leadership of a company are passed down to the next generation of a family. This allows the founding family to maintain control and legacy while ensuring a smooth transition for the business. It is a common business exit plan.

Example: Walmart stays within the family

A well-known example of family succession is Walmart. Sam Walton founded the retail giant in 1962 and later handed over the reins to his son, S. Robson "Rob" Walton, who served as CEO for several years before transitioning to chairman. The Walton family remains the company's controlling shareholder.

#5: Bankruptcy

Bankruptcy serves as a last-resort exit strategy for businesses facing overwhelming financial burdens. It involves filing legal protection from creditors, allowing the court to oversee the restructuring of debt or the liquidation of assets to repay creditors. While not ideal, bankruptcy can provide a fresh start for the owner and potentially some employees who can be hired by the new ownership if the business is reorganized. It doesn't bring a return on investment, however is a good resource for dying businesses.

Example: Kodak resurfaced

A real-life example of bankruptcy as an exit strategy is Eastman Kodak. The photography giant filed for bankruptcy in 2012 due to struggles adapting to the digital age. Through the process, Kodak sold off assets and restructured its debt, eventually emerging with a smaller focus on digital printing technology.

Navigating business exit strategies with boopos

A well-thought-out exit strategy is essential to preserving your legacy while optimizing value. As you evaluate the examples provided here, the need for tailored support becomes clear.

Boopos can serve as an unmatched ally in your journey to sell your company . Join our marketplace today!

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• Business Exit Strategies

Written by True Tamplin, BSc, CEPF®

Reviewed by subject matter experts.

Updated on February 23, 2024

Are You Retirement Ready?

Table of contents, exit strategy overview.

Exit strategies are crucial for business owners to ensure a smooth transition of ownership or dissolution of their business. Planning for an exit strategy is vital as it helps owners to maximize the value of their business, minimize taxes, and achieve their personal and financial goals .

The choice of an exit strategy depends on various factors, including the business's size, industry, financial performance, and the owner's personal objectives.

Read Taylor's Story

Taylor Kovar, CFP®

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I'm Taylor Kovar, a Certified Financial Planner (CFP), specializing in helping business owners with strategic financial planning.

A few years back, I guided a retiring tech firm owner through a staggered exit, initially selling a minority stake to inject fresh resources and innovation. This strategic move not only ensured a smooth leadership transition but also expanded market reach and operational stability, significantly enhancing the firm's valuation. By maintaining cultural integrity and showcasing long-term viability, we attracted competitive bids, turning a potential concern into a lucrative exit and preserving the owner's legacy.

Contact me at (936) 899 - 5629 or [email protected] to discuss how we can achieve your financial objectives.

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Types of Business Exit Strategies

Liquidation.

Liquidation refers to the process of selling off a business's assets and using the proceeds to pay off its debts and liabilities . This strategy is often considered when a business is struggling financially or when the owner wants to retire or move on to another venture.

The following table shows the pros and cons including the suitability of liquidation as an exit strategy.

Selling the Business

Selling a business involves transferring its ownership to a new party in exchange for monetary compensation. The sale can take various forms, such as an asset sale, stock sale, or merger/acquisition.

Types of Sale

An asset sale involves selling individual assets of a business, such as equipment, inventory, and intellectual property.

A stock sale involves transferring the ownership of the business's shares to a new owner.

Merger or Acquisition

In a merger or acquisition , the business is combined with another company, typically a larger one, and the owner may receive cash, shares, or a combination of both.

Finding the Right Buyer

To find the right buyer, business owners should consider the following factors:

Compatibility with the business's values and culture

Financial capability

Reputation and track record

Management Buyout (MBO)

An MBO occurs when a company's management team purchases the business from its current owner. This strategy is suitable when the owner wishes to retire or pursue other opportunities, and the management team is capable of running the business.

The table below shows the pros and cons of MBO including the factors to consider when choosing this strategy.

Employee Stock Ownership Plan (ESOP)

An Employee Stock Ownership Plan (ESOP) is a strategy that involves transferring ownership of a business to its employees through a trust. This allows employees to acquire shares in the company, and the owner gradually exits the business.

The table below shows the pros and cons of ESOP including the factors to consider in this strategy.

Initial Public Offering (IPO)

An Initial Public Offering (IPO) is the process of offering a company's shares to the public for the first time. This strategy is suitable for businesses with strong financial performance and growth potential.

The table below shows the pros and cons of IPO including the suitable scenarios for such strategy.

Family Succession

Family succession involves transferring the ownership and management of a business to family members, typically the next generation.

The table below shows the pros and cons of family succession including the factors to consider in this strategy.

Preparing for an Exit Strategy

Timing considerations.

Choosing the right time to exit a business is crucial for maximizing its value and ensuring a smooth transition. Factors to consider include:

Market conditions

Business performance

Personal goals and readiness

Business Valuation

A proper business valuation is essential to determine the fair market value of a company. Various methods can be used, such as:

Asset-based approach

Income-based approach

Market-based approach

Legal and Financial Preparations

Preparing for an exit strategy involves addressing legal and financial aspects, such as:

Ensuring compliance with regulations

Resolving outstanding liabilities

Updating financial records

Enhancing Business Attractiveness

To maximize the value of a business, owners should focus on enhancing its attractiveness to potential buyers, including:

Streamlining operations

Increasing profitability

Building a strong management team

Developing a Transition Plan

A well-crafted transition plan is essential to ensure a smooth transfer of ownership and minimize disruptions. Key components of a transition plan include:

Timeline for the exit process

Roles and responsibilities of stakeholders

Training and support for the new owner or management team

Execution of the Exit Strategy

Engaging professional advisors.

Working with professional advisors can help navigate the complexities of the exit process. Key advisors include:

Accountants

Business brokers

Investment bankers

Negotiating Terms and Conditions

Negotiating favorable terms and conditions is crucial for maximizing the value of the exit. Key aspects to consider include:

Payment terms

Non-compete agreements

Warranties and indemnities

Due Diligence Process

The due diligence process allows potential buyers to verify the accuracy of the information provided by the seller. Key aspects of due diligence include:

Financial review

Legal review

Operational review

Closing the Deal

Closing the deal involves finalizing the terms and conditions, signing legal documents, and transferring ownership. Key steps include:

Reviewing and approving final documents

Ensuring all conditions are met

Receiving payment and transferring ownership

Post-Exit Considerations

Taxes and financial planning.

Exiting a business may have tax implications, and proper financial planning is essential to minimize the tax burden and maximize the owner's financial well-being.

Non-Compete Agreements

Non-compete agreements can be part of the exit strategy to protect the new owner and ensure a smooth transition. The terms of such agreements should be clear and reasonable.

Business Owner's Role Post-Exit

The exiting owner may continue to play a role in the business after the exit, such as serving as a consultant or board member. This should be clearly defined and agreed upon with the new owner.

Emotional and Psychological Impact

Exiting a business can have emotional and psychological effects on the owner. It is essential to prepare for this transition and seek support from friends, family, or professional counselors.

A well-planned exit strategy is essential for business owners seeking a smooth transition and maximum value from their business.

Key points to emphasize include considering factors such as financial performance, personal goals, and industry conditions when choosing the right exit strategy.

Some business exit strategies to consider are liquidation, selling the business, management buyouts, employee stock ownership, IPOs,. and family succession.

Preparation involves timing, valuation, legal and financial preparations, enhancing business attractiveness, and developing a transition plan.

Execution requires engaging professional advisors, negotiating terms, conducting due diligence, and closing the deal.

Post-exit considerations include tax and financial planning, non-compete agreements, defining the owner's role, and addressing emotional and psychological impacts.

By carefully considering these key points and implementing a comprehensive exit strategy, business owners can secure their legacy and achieve their personal and financial goals.

Business Exit Strategies FAQs

What are business exit strategies.

Business exit strategies are plans put in place to help business owners leave their companies, either by transferring ownership or dissolving the business.

What are some common business exit strategies?

Some common business exit strategies include selling the company to another party, transferring ownership to family members or employees, going public through an initial public offering (IPO), or liquidating assets and closing the business.

Why is it important to have a business exit strategy?

Having a business exit strategy is important because it provides a clear path for the owner to exit the business on their own terms, while also ensuring the future success of the company.

When should you start planning your business exit strategy?

It is recommended that business owners start planning their exit strategy at least 3-5 years before they plan to exit the business. This allows for ample time to prepare the business for a successful transfer of ownership.

How can a professional help with business exit strategies?

A professional, such as a business broker, lawyer, or financial advisor, can provide valuable expertise and guidance in developing and implementing a successful business exit strategy. They can also help navigate legal and financial considerations associated with the exit process.

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide , a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University , where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon , Nasdaq and Forbes .

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7 Effective Business Plan Exit Strategies with Real-Life Examples

Business Plan Template

• August 29, 2024

In a study conducted by Harvard Business Review , nearly 70% of the respondents agreed to have neglected business exit planning.

Surprisingly, most entrepreneurs only take exit planning seriously when they desperately need to sell the business or have an inbound interest from an acquirer.

The result?

Entrepreneurs either miss out on an exciting strategic opportunity or have to agree on an unsatisfactory deal for their venture.

To avoid such situations, it’s important to have a detailed exit strategy business plan in practice.

But what’s an exit strategy, and what purpose does it solve? How to prepare an exit plan, and what are the different approaches to exit strategies?

Let’s understand each of these in this blog post with real-life examples.

But before that…

What is the exit strategy?

An exit strategy is a planned approach to end the business or transition its ownership to a third party. This strategic plan protects the interests of shareholders, businesses, and business owners by helping them maximize the returns or minimize losses.

A proper exit strategy details all the necessary steps to close or sell the business by outlining its exit options, expected valuation, objectives, and timeline for the exit.

What is the purpose of an exit strategy?

While no entrepreneur thinks of closing a business from the beginning, there would come a time when they would sell the business or close it due to changing market and economic conditions.

A well-detailed exit plan in such times will help them in winding up or selling the business for maximum returns.

Here are a few reasons why you need an exit strategy:

• Maximize the financial gains for investors, owners, and other stakeholders.
• Align the exit process with your long-term business and personal goals.
• Prepare for unforeseen market and economic changes.
• Offer clarity and direction to stakeholders during the transition.
• Ensure financial and operational sustainability of the business after exit.
• Minimize the financial risks in case of business failure .

Now that you understand the purpose of exit strategy, let’s understand a few different business exit strategies.

7 types of exit strategies with examples

Let’s help you understand how exit strategies are implemented in the real world with practical examples.

1. Strategic acquisition and merger

Amongst the common exit strategies, acquisition and merger are the ones widely practiced by businesses.

Here, a business owner sells their company to a larger company, typically operating within their industry.

Potential buyers (larger firms) often acquire businesses whose services they can merge with their own. Acquisitions that can help them expand their market, strengthen their competitive advantage, or deliver comprehensive services.

Examples of acquisition and merger

1. Walt Disney acquired 21st Century Fox in 2017 at $52.4B. 

21st Century Fox’s acquisition enhanced Disney’s portfolio of streaming services and its global presence. It streamlined its direct-to-consumer streaming offerings and brought franchises like X-Men and Deadpool under one roof.

2. Microsoft acquired Github for $7.5B in 2018

In the first year itself, Microsoft’s acquisition of Github increased the number of GitHub monthly users by 70%.

2. Initial Public Offering (IPO)

IPO is when a private company offers its shares to the general public for the first time on a stock exchange.

By going public, business owners and early investors can sell their shares to realize the profits. They can use the liquidity to engage in new businesses and diversify their wealth.

Alternatively, owners can also retain a portion of their shares to continue participating in the company’s growth and governance.

Examples of famous IPOs

Airbnb went public on 10th December 2020 and shattered records by claiming its position as the most valuable IPO in the history of the hotel industry.

On the contrary, we have an IPO that proved to be an instant Wall Street flop. When Uber went public in May 2019, it managed to gather only $69 billion. This was almost half of its expected valuation, i.e. $120 billion.

3. Management Buyout (MBO)

Management buyout or leveraged buyout is a type of business exit planning where you sell your business to the existing management.

This is a perfect strategy for entrepreneurs who want their legacy to continue even after their exit. Since the management is already aware of business intricacies and its day-to-day operations, the transition remains smooth with minimum due diligence.

Example of Management Buyouts: Thomas Cook

In 2013, Thomas Cook was a publicly traded company struggling financially. The management team along with the CEO Harriet Green negotiated the deal of buying the company with the board of directors.

This MBO was a success wherein the company successfully managed to pay off its debt and go public again.

4. Family succession

As the title suggests, here the ownership and leadership of the business are passed down to the next generation of the family.

This is the best exit strategy if you have a reliable family member to carry forward the business legacy.

Although the ownership transfers within the family, it’s important to devise a proper exit plan. If not, the feuds within the family and rivalries can destroy the century-long businesses.

Examples of family succession

BMW, founded by Günther Quandt, is a perfect example of family succession. Despite being the largest luxury car brand in the World, the family still owns a 46% stake in the company

Ford Motor Company, the second largest automaker in the World, still owns a 40% stake in the company. The family members still own executive positions carrying the legacy forward.

5. Liquidation

Liquidation is a common exit strategy where businesses shut their operations by selling all the business assets . The amount generated by selling off the assets is first used to repay the creditors and pay the employees before getting distributed amongst the owners.

It’s mostly practiced when the business is solely dependent on an individual. Sometimes, even the failing businesses at the cusp of bankruptcy choose to liquidate.

6. Bankruptcy

When the business faces a liquidity crisis or extreme financial burden and there seems to be no out, business owners file bankruptcy to seek legal protection from their creditors.

It’s the least desirable exit strategy as it severely impacts the creditworthiness and reputation of the company.

Here the financial institutions seize the company’s assets to provide debt relief. And while bankruptcy may not bring a return on investment, it helps the company owner close or restructure their dying business.

Examples of bankruptcy

Six Flags, a renowned theme park operator and amusement company filed for bankruptcy in 2009 with a $2.7 billion debt. However, the company reorganized and emerged from bankruptcy in less than a year.

One of the US’s most valuable startups, We Work filed for bankruptcy in November 2023. We Work continues to operate while it renegotiates its lease and debt obligations.

7. Partner or investor buyout

Such an exit strategy is often associated with the term friendly buyer. Here a business owner sells their stake in a limited liability partnership to the partner or investor while the business continues to operate as usual.

That’s a round-up of all the business exit strategies to sell or close a business effectively.

How to plan an exit strategy for a business

Planning a successful exit strategy involves a careful consideration of financial, operational, and stakeholder interests to ensure a smooth transition of ownership.

Here are a few quintessential elements of any exit strategy:

• Define your business’s exit objectives . If you’re chasing returns, what returns are you expecting? If not, what is it that you want to gain from this exit?
• How long do you plan to be part of this business? Define a time frame when you would sell or close this business.
• Define your intentions with the business . Do you want to sell the business to a larger acquiring firm or want the management to take over? Do you want a family member to continue your legacy or launch an IPO?
• Prepare your financial documents and demonstrate your financial preparedness . Ensure that your financial documents, legal documents, and business operations are transparent offering a true insight into your business value.

While the term exit strategy may associate itself with negative connections, it’s one of the most critical and practical aspects of your business plan.

Investors typically need to know how they will get a return on the money invested in your business. A solid exit plan instills their confidence in your idea demonstrating your readiness to grow and lead the business to its desired profitability.

By preparing a successful exit strategy, you can navigate your business’s future and ensure a smooth transition when the time comes.

Now, quickly whip up your business plan for investors using the Upmetrics business planning app . Its predefined templates, detailed guides, and AI-powered tools will help you prepare a perfect plan in about a few minutes.

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Frequently Asked Questions

What is the exit stage of a business.

The exit stage of a business is a phase where the owner or investor decides to leave the business either by selling or closing it. In case the business is to be sold, efforts are being made to ensure a smooth transition of ownership and in case of closure, the idea is to gain maximum returns on investment.

What should be included in an exit strategy?

Here are a few things you should include in your exit plan:

• Exit strategy objectives
• Evaluation of different exit options
• Valuation and financial consideration
• A contingency plan in case of an unexpected situation

How to write an exit strategy for a business plan?

To write an exit strategy for a business plan, begin by identifying the objective of your exit. Evaluate different exit options and define the timeline of your exit. Lastly, ensure that your strategy aligns with your long-term goals and investors’ expectations.

What are the best exit strategies for startups and investors?

Here are a few exit strategies that are proven to be extremely good for startups and investors:

• Acquisitions and mergers
• Management Buyouts
• Family succession
• Employee Stock Ownership Plan (ESOP)

About the Author

Upmetrics Team

Upmetrics is the #1 business planning software that helps entrepreneurs and business owners create investment-ready business plans using AI. We regularly share business planning insights on our blog. Check out the Upmetrics blog for such interesting reads. Read more

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Why Every Business Owner Needs an Exit Strategy

An exit strategy is a key component of entrepreneurship, as it can provide a sense of safety and peace of mind.

Table of Contents

You wrote a business plan to launch your company. To say goodbye to it, you need an exit plan to get the maximum possible return and to limit any future exposure to what happens to the company after your departure. But years of experience teach you that nothing in business is predictable — and that’s why you need two exit plans.

Why every business owner needs an exit strategy

Today, most business brokers and advisors recommend incorporating a thorough exit strategy into your business planning from the very start. While it may seem counterintuitive to plan on starting or buying a business and simultaneously plan how you’re going to sell or remove yourself from it, this is the smartest move you can make in today’s fast-paced economy.

Here are some of the benefits of developing an exit strategy.

Gives you an end goal 

If you don’t know where you’re going, you’ll never know when you get there. An exit strategy helps define what success is for you and provides you with a timetable complete with milestones toward your exit.

Informs strategic decision-making  

Without a plan, it’s easy to get caught up working “for” the business, and resolving day-to-day issues. With a firm end game in mind, you have the vision to work “on” the business instead, planning and executing the strategies you need to achieve the ultimate end goal you’ve set for yourself.

Enhances the value of the business

If you don’t have an exit plan, your business will have some inherent value when you look to change ownership, but this is often the baseline value. With an exit strategy where you have a clear end goal in mind, your business is worth more to potential buyers or investors. You’ve grown it, locked its profitability, trained a strong management team, established a customer base, cemented meaningful supplier relationships and, most importantly, structured the business to operate independently of your personal involvement. That is valuable.

Provides a flexible template 

At some point, you will likely need to make adjustments to your exit strategy. Sometimes, that will be for business reasons. Other times, something unexpected and unwanted like a sudden death, divorce, major health problem or required relocation may force you to change course. It’s easier to revise and tweak a plan that already exists with clear objectives and milestones than to come up with one suddenly to cope with a sudden change.

Having a preexisting strategy makes managing unforeseen events simpler. That’s because you already have a way of making decisions for growth — one that’s got you to where you are. You can strengthen this by involving outside professional advisors like a business broker, attorney and accountant to help you course correct when necessary and to monitor progress against your goals. 

Why you need 2 exit strategies

Creating one exit strategy may seem daunting enough, but to cover your bases, you should craft two different plans: one for a voluntary exit and one for an involuntary exit.

With a voluntary exit strategy, you’ll know the following:

• When you want to leave:  Maybe it’s in five years, 10 years or when revenue hits $10 million.
• Who you want to take over the business:  It could be a brand-new owner, your current management or a family member.
• How much money you want to leave with:  Perhaps you’d like a lump-sum payment, a share of profits every month for the rest of your life or a mixture of both.
• What to do if you’re approached by a potential buyer:  How will you react if you’re contacted out of the blue? More business owners today are receiving unsolicited buyout offers than in years past.

But things don’t always go the way you expect them to, so you need a plan for that as well. With an involuntary exit strategy, you’ll know what to do in the following situations:

• You fall ill and you’re not able to work in the way you used to (or at all):  You need to know who’ll take the reins and make decisions and you need to train them now so the business is ready.
• Your business begins to fail financially:  You need to know which employees and assets you can jettison so you can stay solvent and in business.
• You burn out and just can’t take it anymore:  If it’s all getting to be too much, you need to look after yourself. Do you hang in there, appoint a successor for day-to-day overall management or look to sell up? A well-defined involuntary exit strategy can lead the way.

The best way to plan for leaving your business for good is to prepare as if you have to leave it involuntarily.  That might sound strange, but the situations that lead to voluntary and involuntary exits have a lot in common. For example, in either scenario, you need to do the following:

• Train people to run the company in your absence:  If you want to sell up, the person who wants to buy it probably won’t want to run the company day to day. If they know your business is not owner-reliant, this is a massive selling point. Meanwhile, if you fall ill or burn out, it’s a big comfort knowing your staff can keep the business operational so it can continue flourishing.
• Know which assets and staff to cut to survive:  This is not only a way for you to reduce costs when business is suffering. It’s also a road map for a new owner looking to streamline operations and make more money from their investment.
• Sell off nonvital assets quickly for cash:  A new owner will want to know they can sell certain assets to offset some of the amount they paid you to take over the business. If you’re managing a crisis and need cash, you need to know which assets you can sell (or refinance) to bring money into your account.

With two exit plans in place, you have more bases covered, and you can carry out strategies that benefit both you and the new ownership.

What an exit strategy involves

Developing a well-rounded exit strategy entails the following.

Knowing when you want to leave

For your voluntary exit strategy, set yourself a date in the future by which you want to achieve your ultimate goals. These milestones could be based on metrics like company revenue and profitability. Decide on whether you’ll still proceed with a sale if you’re not successful in hitting those targets.

When you have a fixed date of departure in mind, your approach to running the business changes. You now think long-term as well as short-term because you’ll constantly be looking for ways to not only improve profitability but also build more value in your business to make it as attractive as possible to potential buyers.

Discovering who your most likely buyers are

Try to come up with “buyer personas” — documents that detail the type of person or company that would want to buy your business and why. (These are similar to customer personas , which are developed to identify your ideal customer.) To get your wheels turning, look below at potential buyers for four very different types of businesses.

Think about what specific aspects of your business will be valuable to buyers. Consider how you’ll develop and showcase those assets to increase the appeal and value of your company at the point of exit.

Developing assets that are valuable to other businesses

Sometimes, your company’s real value may be hidden behind your North American Industry Classification System (NAICS) Code. Don’t limit your company’s selloff potential by only considering buyers in your specific field.

Consider this example: You’re an e-commerce retailer and you’ve developed custom software that places your products in prominent search positions on third-party sales platforms. That, of course, would have great value for a purchaser from your sector. But it may have much greater value to a technology company and you could make a lot more money selling or licensing that software than doing a traditional sale to a competitor. Another benefit is that you could sell or license this software to raise cash if your company falls on hard times and needs money quickly. 

Improving performance in your business

Keep finding areas of improvement across your business. If you have developed custom software, as mentioned above, continue to develop it with your own needs in mind first but also consider what other companies would need to make them want to rent from you.

Look at new ways to get more people to your website or your premises every month with each visit costing you less. For instance, consider changing suppliers if you’re offered a similar quality product or service that does the job for a lower price. Ask yourself what you need to do to get that package to your customer in three days instead of four.

Another great way to build value is to do a competitor analysis. Investigate the competition in your market. Where are they doing better than you and how can you match or beat them?

Chasing profitable growth

Be experimental and creative in your advertising and keep tweaking every campaign to find wins like a drop in cost per sale or conversion. If you can prove to a potential buyer that by spending $1 on this campaign, you get $10 in revenue back and that’s been the case for years, that has tremendous value.

Promote deals to customers through  email marketing campaigns  and  short message service messaging and aim to make as much money as you can on each sale. Think of your future buyer when pricing up and chasing new business.

Doing everything you can to keep customers loyal

Don’t use the client email addresses and phone numbers you’ve collected just to move inventory; use them to  grow customer loyalty . 

Let customers know about a new product before it goes live on your website and give them the first opportunity to buy it. Send emails asking repeat clients to recommend you in online reviews. When someone does, give them a shoutout on social media and offer them a present as a thank you.  [Learn the  importance of social media for small businesses .]

Use  customer tracking tools  to work out the annual and lifetime value of each customer. Buyers look for those types of numbers. They also like companies with lots of clients who have given permission to receive emails and texts.

Customer loyalty is also key in any involuntary exit plan. If a crisis arises, you can attract regular clients and raise money quickly with a one-time sale. For example, if you sell subscription services, offer a special annual deal to existing customers to generate an influx of cash.

Handing over responsibilities to employees

The hardest types of businesses to sell are mom-and-pop shops and one-man bands. To a buyer, it’s like buying a job, not a company. It’s also really hard to sell businesses where there are 10 to 20 employees but success is still the responsibility of the owner. That’s because it’s like buying the job of a senior manager.

Delegate an increasing number of responsibilities to your employees over time. Train them and trust them to take on key tasks. If they make a mistake, be there to help them fix it and build up their confidence. If you don’t delegate, you’re training helplessness instead of anything valuable.

If a buyer asks, “Have you spent time away from the business?” you want to be able to confidently and truthfully say something like, “I spent three months in Hawaii and got one update email from the team a week. Everything ran like clockwork.”

For an involuntary exit plan, knowing you can step away for a while and still draw money thanks to your responsible staff gives comfort if you’re suffering from ill health or burnout.

Paying down company debt

You should try to pay down as much company debt as possible. That’s because when one company takes over another, things like business equipment loans and factoring service agreements cannot be novated.

In other words, they have to be settled in full on “completion day” (the day you sell your business). Normally, whatever you owe creditors is subtracted from the agreed-upon price you sell your company for, so you want to have less debt to subtract. Paying down debt also reduces your monthly servicing bills, meaning more profit in the meantime.

Starting to save money

Selling your business costs a lot of money. There are lawyers’ fees, accountant fees, professional service fees, a commission to your broker and more. For a business with $1 million in annual revenue, expect to pay up to $150,000 for a successful sale. If a deal is agreed to but falls through, you’ll still have to pay your team of outside advisors and experts.

If your business is struggling financially, having a decent amount of money saved up gives you more time to delegate day-to-day tasks to staff and raise cash by selling assets. If you also shrink your payroll and look for other savings, this will buy you even more time, financially speaking.

Exit strategies for startups vs. established businesses

There are dozens of ways for owners and investors to exit their businesses; however, the path chosen often depends on the age and size of the company.

Exit strategies for startups

• Initial public offerings (IPOs): IPOs are the favored way for many startup business owners to divest themselves, especially tech businesses that have already gone through a few rounds of funding. When you opt for an IPO, your business becomes a publicly traded and you and your investors should all make substantial returns. Bear in mind there are many regulation and governance hurdles to jump in preparation for an IPO.
• Strategic acquisitions: Most times, startup business owners end up selling their companies to larger competitors in the same or a related industry. You sell the shares in the business to your acquirer and this results in a complete transfer of ownership. Quite often, startups are bought for some aspect of their business that is unique and valuable, not necessarily due to their levels of profitability or market share. 
• Management buyouts (MBOs) : In an MBO, a team consisting primarily of your current management raises the money to buy you out. Returns for owners on MBOs can be good but are generally not as high as a strategic acquisition. Still, MBOs are an excellent way of ensuring the company remains in capable hands.

Exit strategies for established businesses

• Merger or acquisition: For established businesses with good profitability and an impressive market share, you can merge with or be acquired by another company. Businesses are often valued at multiples of annual profit and the higher your turnover and profitability, the greater the multiple you’re likely to receive. If you want to stay involved with your business after a merger, you can make it a condition of the sale that you stay on the board of the business you’re selling and/or have a seat on the board of the merged company.
• Liquidation: If you wish to exit the business on a faster timeline than it takes to find a buyer, liquidation is an option. You sell all your assets and settle all your existing debts, allowing you to extract the remaining residual value from your business as income. While quick, it’s much less lucrative than a sale or merger in most cases.
• Bankruptcy: If your business is facing insurmountable debts, you have two choices. First, there’s Chapter 11 bankruptcy, which keeps your doors open while you restructure your debt. Second, there’s Chapter 7 bankruptcy, which allows you to settle company debts by selling off your assets. This is a tough decision to make, but bankruptcy can relieve many financial burdens your company is suffering, giving it a chance to do business again in the future. There are a few specialist venture capitalist and private equity firms that specialize in purchasing bankrupt or near-bankrupt companies too.
• Spin-offs: If your business has several operating divisions, whether distinguished by geography, activity or both, you could spin them off into separate entities and sell them to realize their value. This way, you receive a payout and reduce the size of the operations you’re responsible for.

Word of caution

Beware of earn-outs. With an earn-out, you receive part of the agreed price for your company now and the remainder in tranches over a period of time based on the business’s continued performance.

It is perfectly normal not to receive your asking price in one go. However, if you agree that what you’re paid will be linked to the performance of the business once you’re no longer in control of it, you’ll be putting yourself in grave danger of not getting all the money you’re expecting.

Tips for executing an exit strategy

Now that you know what creating an exit strategy involves and how exits can differ for startups versus established businesses, follow these tips when executing your plans.

1. Bring in outside expertise.

You need to build your own professional team for the sales process because your buyer will almost certainly have one. You want to level the field as much as possible, but you also want people on your side who know the intricacies of selling companies.

Consider hiring part-time chief financial officers or fractional chief marketing officers well before you put your company on the market. Bring experienced, proven talent with wider connections in the business world to your C-suite to help you improve the organization first. They’ll be invaluable in helping you carry out your exit strategy when a deal is on the table.

These same professionals will have proven themselves adept at crisis management in their careers too. They’ll be able to help you get out of awkward financial situations and train your workers to handle management responsibilities.

2. Keep your accounts up to date and your accountants close.

Inform your accountants that you want to be in a permanent state of readiness in case you receive a purchase offer out of the blue or decide to put your company on the market. Once you’ve identified the financial areas of greatest interest to your buyer type, make sure your accountant updates the company’s finance reports on a weekly or monthly basis and keeps historical records of them. The  best accounting software  will come in handy.  [Related article:  How to Hire the Right Accountant for Your Business ]

3. Hire a corporate lawyer.

Retain a lawyer, preferably one with mergers and acquisitions (M&A) experience. Your buyer’s corporate lawyers will vigorously defend their interests and try to use the information you provide about your business during the due diligence process to bring down the selling price. You need someone on your team to advocate on your behalf.

4. Hire a business broker and M&A advisor.

Opinions differ on the effectiveness of business brokers and M&A advisors for companies with an annual revenue of less than $1 million. If you’re confident enough, it might be worth forgoing an advisor and handling the process yourself.

But what does a broker do? They market your business in many ways, often on websites like businessesforsale.com. They also handle initial inquiries, verify potential buyers have the required funds to purchase your company and sit in on the negotiations over price. Many try to engineer a bidding situation where two or more interested buyers make offers at the same time to try to drive up the price.

Brokers often also intervene during the due diligence stage. During due diligence, the buyer’s professional team of lawyers and accountants will ask for lots of detailed information about your company, often over a period of between three and six months. Their job is to help the buyer understand exactly what it is they’re buying. Tempers often become fraught during due diligence for a variety of reasons. When this happens, the brokers often act as go-betweens to smooth relations and keep the deal on track.

5. Create your own data room.

In years past, a buyer’s lawyer would enter a private room at your lawyer’s office called a “data room.” Here, they’d inspect financial and employment records, as well as documentation regarding intellectual property ownership and previous and ongoing legal disputes. Most data rooms are now virtual and the professional teams acting for the buyer and the seller usually email documentation to each other.

Create your own online data room as soon as you can and ask your accountants, lawyers and managers to submit updated reports every month. Delays in providing information can upset buyers — something you want to keep to a minimum.

Running your business like nothing else is happening

Once you’ve settled on an exit strategy for your business, don’t spend any more than 30 minutes per day on it, even if you have a deal on the table and it’s going through due diligence. Concentrate on running your business as well as possible to retain and build on the value you’ve already created. Buyers will expect this and they’ll be able to monitor if you’re protecting their interests from the updated information in the data room. Proceeding with business as usual while simultaneously preparing for the future is the best way to be ready for a voluntary or involuntary exit.

Bruce Hakutizwi contributed to this article.

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Business Exit Strategy

A business exit strategy outlines the planned approach for an owner to transition out of a business

Matthew started his finance career working as an investment banking analyst for Falcon Capital Partners, a healthcare IT boutique, before moving on to  work for Raymond James  Financial, Inc in their specialty finance coverage group in Atlanta. Matthew then started in a role in corporate development at Babcock & Wilcox before moving to a corporate development associate role with Caesars Entertainment Corporation where he currently is. Matthew provides support to Caesars'  M&A  processes including evaluating inbound teasers/ CIMs  to identify possible acquisition targets, due diligence, constructing  financial models , corporate valuation, and interacting with potential acquisition targets.

Matthew has a Bachelor of Science in Accounting and Business Administration and a Bachelor of Arts in German from University of North Carolina.

What Is a Business Exit Strategy?

Top business exit strategies.

A Business Exit Strategy is a plan for how a business owner can smoothly leave or liquidate their investment in their company, especially as they approach retirement or encounter unexpected personal circumstances. Instead of shutting down a successful business, the goal is to ensure a smooth transition for the owner, employees, and customers.

Any successful business plan should have a strategy in place on how the owner can leave the company at the end of their career. Very rarely do business owners create & run successful companies for the entire operation to be shut down. Instead, most companies are made to outlive their creator and thrive in business. 

Usually, the owner decides to retire from the company. They may have spent much time, energy, and capital on the company and want to retire comfortably. Having an exit strategy can help ensure that their business is in good hands when they are stepping down.

Another reason could be due to a sudden change in personal circumstances. If the owner becomes ill, defunct, or moves away suddenly, both they and their firm will have comfort in knowing that they have prepared for a situation where there was an unexpected turn of events.

Key Takeaways

Business owners need to plan exit strategies ahead for smooth transitions and financial goals.

Choices include selling, merging, going public, family handover, and management buyouts.

Mergers offer market power and scale, but face integration issues and regulatory hurdles.

Going public provides capital and visibility but involves complexity, costs, and regulatory demands.

Family transfers and management buyouts ensure continuity, yet face challenges like dynamics and financial risks.

The choice of an exit strategy depends on various factors, including the nature of the company and the market it's in.

If the owner's company is in a high-growth industry, they could cash out easily through a sale or IPO, but if relatives manage it, then the owner may pass it down to one of them. 

Regardless of the method the owner chooses to leave the company, they should prepare to put systems in place in advance so the business can operate without its original owner. This article will cover some business exit strategies and some of their benefits & drawbacks.

#1 - Sale of Business

A business owner may decide to sell their business altogether for a profit. This is a very common and popular way many owners exit their companies. 

This allows them to retire or move on to other business ventures through a quick and easy cash-out.

There are three major ways in which a company sale can occur. 

• It can occur as a private sale, where the company is sold directly to another business owner or investor.
• It can be merged with another company to create a whole new business entity where the company’s business processes are synergized.
• Or the company can be outright bought by another one and act as a subsidiary of the other.

Liquidation is also considered a sale of a business. Still, we will look at that in a separate section of the article, as it normally occurs when a company incurs more debt than it can handle or is no longer profitable.

This is usually considered a long-term capital gain and is taxed accordingly by the IRS. However, all business owners may not prefer this. 

It also results in a loss of revenue stream if the company is private and the owner has no more ties to the company, which may also be unfavorable.

We will go into more detail on the three methods of cashing out of your business for a profit through a company sale and look at the benefits and drawbacks.

#2 - Private Sale

The owner may choose to sell the confidential business to another individual or group if that group is ready to buy.

There are several steps an owner should take to ensure a successful transaction:

1. Valuation

You need to have value for your business, which can be done with the help of a valuation expert who can analyze financials, assets, & liabilities to determine worth & set a sale price.

2. Preparation

Now, the company needs to be prepared for sale. It includes improving the business through equipment upgrades & marketing efforts. You should also have a comprehensive package of financial statements , market materials, and all other relevant information.

3. Find Buyers

The owner may speak with other owners & competitors in the industry. Then, the owner works with a broker to negotiate a price & terms for sale.

4. Due Diligence

The buyer will spend a couple of weeks to months conducting their due diligence on the business to ensure all presented information is accurate. They will assess the size, complexity, and business model before deciding. 

Finally, the sale can be closed after the buyer's due diligence. It involves signing a purchase agreement and transferring ownership to the buyer, which could be a single payment, continuous payment, or an earn-out.

Benefits and Drawbacks of Private Sale 

Some of the benefits and drawbacks are as follows:

The Pros are:

• Confidentiality : If your company relies heavily on company-customer loyalty, this is a way to keep the sale private. It can avoid feelings of uncertainty that may harm the business in public sales.
• Flexibility : If the business has unique or specialized assets, this can give the seller more control over the terms of the sale, so they get the best deal for their situation.
• Personalized Negotiations : The seller can negotiate directly with the buyer, creating personalized negotiations and greater control over the sale process.
• Lower Transaction Costs : Fewer parties are involved, so there are lower transaction costs.

The Cons  are:

• Limited Buyer Pool : These sales can have a limited pool of buyers, making it more difficult to find a buyer.
• Lack of Market Competition : There is less competition and, thus, no competitive bidding process, so the buyer faces less stress to pay a fair price for the seller’s business.
• Increased Risk : Private Sales can be riskier than public ones, as the buyer may not perform the same level of due diligence or have the financial resources as a larger company, which means the company may struggle to survive after the sale.
• Limited Exposure : Private sales may have less exposure for the business, which can be challenging for sellers trying to market the business and achieve the desired sale price. Ultimately, the decision to sell a business through a private sale will depend on the business circumstances and owner preferences. Therefore, it is essential to consider the potential pros & cons of each option & work with a trusted team of advisors to ensure a proper & successful transaction.

#3 - Merger

Another style of business sale is through a merger , where two or more companies combine their operations into one corporate entity. 

There are three ways a merger can occur:

1. Horizontal Merger

This merger occurs when two companies in the same industry & offer similar products/services merge, which increases the final entity company’s market share , reduces competition, and improves profitability via economies of scale .

2. Vertical Merger

Here, companies operating at different supply chain levels merge. For example, this could be a manufacturer merging with a retailer. It leads to greater control over the supply chain, const synergies, and more efficiency.

3. Conglomerate Merger

It occurs when two companies in completely different industries merge. And diversifies the revenue of the newly merged entity’s revenue stream and reduces the risk.

Mergers can occur in many different ways. Still, it normally occurs in a stock-for- stock exchange , where the owners of the selling company receive shares of stock in the merged company in exchange for their ownership stake in the selling company.

It also allows the owners to participate in the future success of the newly merged company. 

Pros and Cons of Merger

This method has many pros & cons and can be described as follows.

The  pros  are:

Combining operations can help the merged company increase market share & reduce competition.

• Market Power :  Combining operations can help the merged company increase market share & reduce competition.
• Economies of Scale:  Pooling resources can help the merged company achieve cost synergies & greater efficiency.
• Diversification:  Merging with another company in another industry or market can diversify revenue & reduce risk.
• Access to new markets:  Merging with a company with a strong presence in a new market or geographic region can help the merged company access new customers and growth opportunities.

On the other hand, the  cons  are:

• Integration Challenges: Mergers can be complicated to execute. In addition, there could be challenges in integration, cultures & systems.
• Costly: Mergers can be expensive, with legal fees, due diligence costs, and integration efforts.
• Cultural Differences: Mergers can be companies with varying cultures, values, and ways of doing business together, leading to potential conflicts and challenges.
• Regulatory concerns:  Mergers may face government blocks that could stop them from merging.
• Shareholder disagreement :  Shareholders could disagree over deal terms and/or the direction of the combined company.

Mergers can be risky and complicated and involve many integrational challenges. Therefore, it is important that a company holistically examines the potential risks and benefits of a merger before proceeding with one.

#4 - Acquisition

An acquisition occurs when a larger company purchases a smaller company. This option is mutually beneficial, as the buyer can access new products, services, or markets while the seller cashes out. There are two types of acquisitions:

1. Strategic Acquisitions

They are made by companies looking to expand into new markets or gain access to products or services. These are motivated by synergies between the companies by offering complementary products or services or accessing new distribution channels. These are done to integrate the companies to realize long-term benefits rather than the target company's assets.

2. Financial Acquisitions

It is made by companies looking at a company for its assets or financial advantage. These can be motivated by acquiring valuable intellectual property or patents or gaining access to a larger customer base.  These are done to maximize short-term financial gains, such as selling off the acquired company’s assets or leveraging the customer base.

Regardless of the type of acquisition, the process involves several steps:

Buyer conducts due diligence to evaluate the target company’s financials, operations & legal liabilities. They will also assess the benefits & risks of the acquisitions.

After Due diligence, the buyer will negotiate the terms of the acquisition, including purchase price, payment structure, and any contingencies or warranties.

Finally, the companies work together to integrate their operations and realize the benefits of the acquisition. It may involve restructuring or merging the acquired company with the buyer's existing operations.

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Advantages and Disadvantages of Acquisitions 

Here are some of the pros & cons of an acquisition:

The  Pros  are:

• Exit strategy:  Selling the business through acquisition can provide the owner with an efficient and straightforward exit strategy.
• High valuation:  Acquisitions often result in a higher business valuation than would be possible through other exit strategies.
• Synergies: The acquisition may result in synergies between the two businesses, improving profitability.

The Cons  are:

• Loss of control:  The seller will lose control over the business and may need to give up critical decision-making authority.
• Culture clash:  The seller may not mesh well with the acquiring company's culture, leading to conflicts and difficulties in integrating the two businesses.
• Legal liabilities:  The buyer may inherit legal liabilities or other risks associated with the target company.

For the business to be attractive to the buyer, all the company financials must be in order, regardless of how the sale occurs. This option may also include working with a broker or investment banker to market the business, find the buyers, negotiate the terms & price, and plan any contingencies.

The owner would also work with tax experts to minimize tax liabilities & protect their interests.

#5 - Going Public

​​Business owners may consider exiting their company through an IPO or initial public offering . Through the NYSE and NASDAQ , their now- public company can have their shares bought and sold by investors.

It's easy for a quickly growing company to raise lots of capital in a single transaction by attracting many investors. A couple of prerequisite actions happen before a company goes public. A quick rundown of these steps is as follows:

They work with an investment bank to create a prospectus, which provides information about the company’s business, financial performance , and management team. This gets filed with the SEC and made available to potential investors.

The company & investment bank begin a roadshow , where they present their company to potential investors. Then, the company’s management team meets with the investors to discuss the company’s business & answer questions.

The company sets a price for its shares based on demand. Then, they are sold to the public through an underwriter, usually the investment bank that helped make the prospectus. When the company goes public, the owner can sell off their shares to leave the business or decide to keep some and become a shareholder.

Benefits & Drawbacks of Going Public 

While this may seem like an excellent way to alleviate yourself from the effort of running the company and take the role of a shareholder, this method does have some benefits & drawbacks. 

• Access to Capital:  An IPO can provide a significant influx of capital to the company, which can be used to fund growth initiatives, repay debt, or make strategic acquisitions.
• Increased visibility and credibility:  Going public can bring more attention to the company, attracting customers, partners, and employees.
• Liquidity for shareholders:  Going public will give the shareholders a chance to realize a return on their investment in the company.
• Ability to use stock as currency :  Publicly traded stock can be used as currency for future acquisitions or mergers, which can help the company grow more quickly.
• Potential for higher valuations:  Public companies are valued higher than private ones, which can increase shareholder returns.

The  cons  are:

• Cost and complexity:  An IPO can be a complex and expensive process, requiring significant time and resources from the company's management team and advisors.
• Increased regulatory scrutiny:  Public companies are subject to strict reporting and disclosure requirements.
• Loss of control:  The founders & management team of the company will have less control over operations and strategic direction.
• Pressure to meet expectations:  Public companies must meet quarterly earnings expectations and provide regular updates to investors, which can be challenging and time-consuming.

Public firm shares are easily affected by ups and downs in the stock market. It can change stock prices to factors the company can't control, like economic changes, industry trends, and investor sentiment.

An initial public offering can quickly raise capital and exposure for growing companies. Still, it would be best to consider all the pros and cons of IPO as your business exit strategy.

#6 - Family-Owned

Another option includes passing the business down to family members. Many business owners try to do this, passing it as a gift or through a sale.

Several important tax implications must be considered if an owner decides to pass the business as a gift. The owner will need to file a gift tax return, so they need a valuation for the business. They also want to minimize this by using the annual gift tax or lifetime exclusion.

The owner could also sell the business at a fair market value through a:

• Stock purchase
• Traditional buy-sell agreement
• Family member

When passing the business on, it is important to consider that the family member taking it over has the skills & experience necessary to run the business successfully.  You may consider providing training or mentorship to the member or hiring a third-party consultant to help with the transaction.

Also, consider the impact this will have on family members not involved in the business, as there may be concerns regarding fairness & equal treatment that may disrupt family relationships. 

Pros and Cons of Family-Owned

Some pros and cons to consider when using this strategy are explained below.

The Pros  are: 

• Continuity:  One of the biggest advantages of passing the business on to family members is its continuity, which can help maintain the company's culture, values, and traditions.
• Smooth transition:  Passing the business on to family members can also provide a smoother transition than selling to an outside party. Relatives may already be familiar with the business operations & customers, which can minimize disruptions from management change.
• Financial benefits:  Depending on the circumstances, passing the business on to family members may also provide financial benefits. For example, if the business owner passes the business at a reduced price or as a gift, it can reduce the tax implications of the transfer.
• Personal satisfaction:  It can be rewarding to see the business continue to grow and thrive under the leadership of a family member, making passing the business to a family member can be personally satisfying and fulfilling.
• Family dynamics:  One of the biggest challenges of passing the business on to family members is the potential impact on family dynamics. This can include issues related to fairness, jealousy, and resentment among family members who are not involved in the business.
• Lack of experience:  The owner needs to ensure the relative who takes over the business has the right qualifications & skills to run the business and minimize the chance of them putting the company's future at risk.
• Limited market:  Another potential downside of passing the business on to family members is the limited market for the company. Relatives may not have the financial resources to take over the business and may limit the owner's options.
• Business performance:  The transition to a family member may impact the performance of the business. If the family member is less effective a leader than the previous owner, it can lead to decreased profits and reduced success for the company. It is a great way to keep a business under family leadership and ensure the company lives on for future generations. Still, handling it fairly, transparently, and successfully requires lots of planning.

#7 - Liquidation

What if the business at the time of the owner's exit is not profitable or capable of earning revenue?

It may result in company liquidation. The management sells all assets for cash to pay off creditors and outstanding debts, which includes inventory, equipment, & property. The proceeds of the sale of assets are distributed to creditors and shareholders according to a predetermined order of priority.

First, the assets and liabilities of the company need to be assessed. After they receive an appraisal value, a plan is made to sell them off via auctions, private sales, & negotiations with potential buyers.

After all the proceeds have been collected, the remaining debt is paid off in a predetermined order. This includes secured creditors, like banks and other lenders, then unsecured creditors, like suppliers and vendors. Finally, anything left is distributed to shareholders.

Advantages and Disadvantages of Liquidation

A liquidation is a good option for businesses that are not profitable or have too much debt to equity. However, stakeholders may prefer something other than this option as they get little to no return on their investments while employees lose their jobs. Other pros and cons include:

• Simplicity:  Liquidating is pretty straightforward, as you sell your assets to pay your liabilities. This is an easy and fast way to exit the business if you have few assets and creditors.
• Control:  By liquidating the business, the owner retains control over the process and can determine the order in which debts are paid off.
• Relief:  Liquidation can provide relief for business owners struggling with financial difficulties, simply wanting to retire, or wanting closure so they can pursue other ventures.

The Cons are:

• Limited Return:  In many cases, liquidation results in little or no return for shareholders, which can be frustrating for owners who invested significant time & capital into the business.
• Employee Displacement:  Liquidation often results in the business closing, which means employees lose their jobs. 
• Legal Costs:  Liquidation can be a complex legal process that requires the expertise of attorneys and other professionals and can be costly for an already struggling business or if a business has lots of assets.
• Reputation Damage:  The liquidation process can also damage the business's reputation, particularly if seen as a failure or a sign of financial instability. This can shake the confidence of investors in the owner's future ventures. Liquidation is a viable exit strategy for some businesses, but weighing the potential outcomes with financial and legal advisors before pursuing this option is important.

#8: Management Buyout

A management buyer ( MBO ) is an exit strategy where the current management team purchases the business from the owner.

MBO can help a business owner sell their company to someone they trust (or a group of people). It also gives them the satisfaction of knowing the company is in capable hands. In an MBO, the management team borrows funds from a bank or other lender to finance the purchase of the business from the owner. 

There are many pros and cons to this method:

The Pros  are

• Business Familiarity:  The managing team is familiar with the business operations, which can reduce the risk of disruptions.
• The incentive to Grow the Business:  The management team may have a stronger incentive to grow the business after taking ownership since they will now be owners. And can motivate them to be focused on driving the business forward.
• Confidentiality:  An MBO can be a good option for owners who want to maintain confidentiality during the sale process since the management team is already familiar with the business and can keep the sale private.

The  Cons  are

• Risk of Financial Strain:  The management team may lack the financial resources or expertise to run the business successfully. This could cause a drop in valuation for the business if it cannot leverage the financing method of choice.
• Limited Market:  The pool of potential buyers is smaller in an MBO, limiting the price the owner can receive for the business.
• Potential for Conflict:  The management team may struggle to agree on the purchase terms or work together effectively after taking ownership of the business, which can lead to conflict.
• Complexity and Time-Consuming:  An MBO can be complex and time-consuming. The management team must secure financing, negotiate terms with the owner, and manage the transition process. An MBO is a solid option for business owners to sell their business to trustworthy people who know how to run it. However, it is essential to consider the risks and benefits of an MBO carefully and to work with experienced advisors to navigate the sale process.

A business exit strategy outlines how the business owner will exit at the end of their career.

There are several common business exit strategies, including

• Selling to a strategic or financial buyer
• Transferring ownership to family members or employees
• Going public
• Liquidating the business

Every strategy comes with its own set of benefits and drawbacks, which can impact the exit timeline & financial goals of the owner and the health & value of the company.

Ideally, the business owner should plan their exit 3-5 years in advance to ensure they maximize the business and have a smooth transition. To make their exit strategy they should consider advice from:

• Business brokers
• Financial planners
• Accountants
• Tax specialists
• Attorneys 

They will guide various aspects of exiting the company, help fairly value the business, negotiate terms, and manage the  implications of tax  when the exit occurs.

Ultimately, a well-planned exit strategy can help business owners achieve their financial goals, have a smooth ownership transition, minimize risk & uncertainty, and secure a future long past the original owner's life.

It is a plan that explains the details of how the owner will exit the business.

It allows the owner to maximize & capitalize on the value of their business, ensure a smooth transfer of ownership, minimize risk & uncertainty with leaving a business, and ensure the business outlasts them.

Common strategies include Private Sale, Merger , Liquidation, Acquisition, Passing it on to a family member & going public.

Factors for consideration include your goals, business health & value, exit timeline & tax implications.

It's never too early to plan your exit strategy. Ideally, you should plan 3-5 years before exiting to ensure a smooth transition.

Business brokers, financial planners, accountants, and attorneys are all professionals that can help you when planning your exit strategy.

Yes, your strategy should account for timing, value, & structure. This may have consequences, so you should consult a professional to consider all the impacts before changing the strategy.

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Exit Planning Tools for Business Owners

Exploring Business Exit Strategies: Definitions, Examples, and Top Types

Understanding Business Exit Strategies: Definition and Importance

A business exit strategy is a well-thought-out plan that outlines how an entrepreneur or business owner will sell, dissolve, or transition out of their business.

So, What is an Exit Strategy in Business?

An exit strategy in business is a business owner’s plan to sell, transfer, or close their business. Think of it as the “exit door” for an entrepreneur. It’s how they transition out, either to retire, start a new venture, or due to unforeseen circumstances.

Knowing how to exit a business is critical because it not only determines the financial future of the business owner but also impacts the employees, stakeholders, and the industry at large.

This plan is crucial for mitigating risks and maximizing profits, especially long-term ones. Understanding a business exit strategy involves knowing its scope, from selling the business to passing it on to a successor.

A business exit strategy is a detailed plan that outlines the steps, processes, and actions required to exit a business. This could involve selling the business to a competitor, passing it on to family members, going public through an Initial Public Offering (IPO), or even winding down operations. Implementing exit strategies for businesses requires foresight, planning, and often expert advice.

Why is an Exit Strategy Important?

Real-Life Examples of Successful Business Exit Strategies

There are multiple pathways to a successful exit, but a few standout examples can serve as blueprints.

Selling to a Competitor In 2002, eBay acquired PayPal for $1.5 billion. This was a successful exit strategy for PayPal’s founders, who were able to sell their business for a significant profit. These are just a few examples of successful business exit strategies. There are many other ways to exit a business, and the best strategy for a particular business will depend on various factors, such as the size and type of business, the owner’s goals, and the current market conditions.

Initial Public Offering (IPO) Taking a company public through an IPO is another option. For instance, Twitter went public in 2013, providing a profitable exit for early investors and founders.

Mergers Mergers can be a strategic exit strategy when two companies believe they can be more successful together than independently. A classic example is the merger between Disney and Pixar. In 2006, Disney acquired Pixar in a $7.4 billion deal.

Succession Planning Not every exit strategy involves selling or going public. Sometimes, it’s about ensuring the business remains in trusted hands. Walmart’s founder, Sam Walton, did precisely that. Before passing away, he divided ownership of the company amongst his children, ensuring the retail giant remained in the family.

Top Types of Business Exit Strategies to Consider

There are many different types of business exit strategies to consider, but some of them are: Selling the business to a third party Selling the business to a third party is the most common type of business exit strategy. It can be a good option for business owners looking to maximize their financial return or ready to retire. However, it is important to note that selling a business can be a complex process, and working with a qualified advisor is important to ensure that the sale is completed successfully.

Merging with another company Mergers with other companies can be a good option for businesses that are looking to grow or expand into new markets. It can also be a good way for business owners to gain access to new resources and expertise. However, it is important to note that mergers can be complex and time-consuming, and it is important to carefully consider all of the implications before entering into a merger agreement.

Going public (IPO) Going public is the process of selling shares of a company to the public. This can be a good way for businesses to raise capital or increase their brand awareness. However, going public is a complex and expensive process, and it is important to carefully consider all of the implications before filing an Initial Public Offering (IPO).

Passing the business down to family member s Passing the business down to family members can be a good way for business owners to keep the business in the family and to ensure that it continues to operate successfully. However, it is important to plan carefully for the succession process and ensure that the family members who will be inheriting the business are prepared to take on the responsibility. This strategy also allows for long-term business continuity planning.

Shutting down the business Shutting down the business is the least desirable business exit strategy, but it may be necessary if the business is not profitable or if the owner is unable to find a buyer. If you are considering shutting down your business, developing a plan to minimize the financial impact on yourself and your employees is important. No matter which business exit strategy you choose, starting planning early and getting professional advice is important. By carefully planning your exit, you can increase your chances of a successful transition.

Crafting Your Business Exit Plan: Essential Steps and Tips

Once you’ve decided on an exit strategy, the next step involves crafting a business exit plan example.

Step 1: Valuation Begin by assessing the valuation of your business, either through a professional service or self-evaluation methods.

Step 2: Legal and Financial Planning Legal and financial planning are essential for any business exit plan. This planning phase often involves exit planning services to handle complex transactions.

Step 3: Timeline Set a realistic timeline for your exit, allowing sufficient time for all transactions and transitions to occur.

Choosing the Right Exit Strategy: Factors to Consider for a Smooth Transition

Several factors must be considered to choose the appropriate exit strategy for business.

Market Conditions Market conditions can heavily influence the success of your exit strategy. Assess the current economic climate, competitor behavior, and industry trends. Business Health Evaluate the financial health of your business. Factors like revenue streams, debt, and assets all play a role in determining how viable certain exit strategies may be. Personal Goals Your personal goals and life circumstances will also significantly determine your exit strategy. Whether you aim for quick liquidation or want to ensure long-term business continuity will inform your decision.

Bottom Line

Business exit strategies are fundamental to ensuring a business venture’s smooth transition, sustainability, or profitable conclusion. In order to successfully exit a business, it is important to plan ahead and have a solid understanding of the industry. This may include merging with another company, being acquired by a larger entity, going public, or passing the business on to the next generation. As entrepreneurs and business leaders map out their ventures, considering and planning for an eventual exit is not just prudent but essential for maximizing value and ensuring the continued success of the enterprise.

Amit Chandel   is a “Certified Tax Planner/Coach”, and “Certified Tax Resolution Specialist”. He has extensive experience in Tax Planning and Tax Problem Resolutions – helping his clients proactively plan and implement tax strategies that can rescue thousands of dollars in wasted tax and specializes in issues relating to unfiled tax returns, unpaid taxes, liens, levies, foreign bank account reporting, audit representation, and any other type of tax controversy; Financial Consulting; Business Planning, Business Valuation, Forensic Accounting and Litigation support. He is the recipient of the prestigious Certified Tax Planner of the Year Award-2017, bestowed by the American Institute of Certified Tax Planners..

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• Building Your Business
• Becoming an Owner
• Business Plans

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.

Writing an Exit Strategy

Crafting a robust exit strategy is essential for every business owner aiming to maximize their investment and secure their future. This strategic plan not only outlines the methods for transitioning out of a business but also plays a pivotal role in protecting assets and ensuring a smooth handover. Whether you're considering a sale, merger, or succession, understanding the nuances of an exit strategy can significantly impact your success.

What is an exit strategy and why is it important?

Definition of an exit strategy in a business context.

An exit strategy is a well-defined plan that outlines how a business owner plans to exit their business, whether through selling, transferring ownership, or other means. It is a critical component of exit planning and encompasses various approaches tailored to the specific business and its goals. The primary aim of an exit strategy is to ensure a smooth transition while maximizing the value of the business.

Overview of the role it plays in business planning

Incorporating an exit strategy into your overall business plan is essential to achieving long-term success. It helps business owners anticipate future scenarios and prepares them for the eventual transition. A well-crafted business exit plan serves as a roadmap, guiding owners through the complex landscape of exiting their business. This foresight can help mitigate risks and ensure that the exit aligns with personal and financial goals.

Explanation of how an exit strategy can protect assets and investments

Implementing an effective exit strategy is crucial for protecting your assets and investments. By planning your exit in advance, you can:

• Maximize business valuation by enhancing the company's appeal to potential buyers.
• Identify and address any legal or compliance issues that may arise during the exit process.
• Establish a clear succession plan, ensuring continuity and stability for the business.
• Develop asset protection strategies that minimize tax liabilities and safeguard personal wealth.

Ultimately, a well-thought-out exit strategy not only secures your financial future but also fosters a smooth transition for employees, customers, and other stakeholders involved in your business.

• Regularly review and update your exit strategy to adapt to changing market conditions.
• Consider seeking professional guidance to navigate complex legal and financial aspects.

What are the common types of exit strategies?

Description of selling the business to a third party.

Selling a business to a third party is one of the most common exit strategies. This approach involves finding an external buyer who is willing to purchase the business, often at a premium based on its business valuation . The process typically involves preparing a comprehensive business exit plan that outlines the value of the business, its operations, and its potential for future growth.

When considering this exit strategy, it's crucial to:

• Conduct a thorough business valuation to determine an appropriate asking price.
• Prepare the business for sale by ensuring financial records are up to date.
• Develop a marketing strategy to attract potential buyers.

Overview of transferring ownership to family or partners

Transferring ownership to family members or business partners is another prevalent exit strategy, especially among small businesses. This approach can help maintain the legacy of the business while ensuring a smooth transition. It often involves succession planning to prepare the next generation or partners for leadership roles.

Key considerations for this strategy include:

• Assessing the readiness and interest of family members or partners in taking over the business.
• Creating a legal framework to facilitate the transfer of ownership.
• Establishing clear roles and responsibilities during the transition period.

Explanation of initial public offerings (IPOs) as an exit route

Initial Public Offerings (IPOs) represent a significant exit strategy for businesses looking to raise capital and expand their operations. An IPO involves selling shares of the company to the public for the first time, which can provide substantial financial returns for the original owners.

However, going public comes with its own challenges, including:

• Adhering to strict regulatory requirements and compliance standards.
• Preparing for rigorous financial projections for exit to satisfy potential investors.
• Managing the public perception of the company post-IPO.

Discussion on mergers and acquisitions as a viable option

Mergers and acquisitions (M&A) are often seen as effective exit strategies for business owners looking to maximize the value of their company. In a merger, two companies combine to form a new entity, while an acquisition involves one company purchasing another. Both strategies can lead to enhanced market share, increased resources, and improved operational efficiency.

When considering M&A as an exit strategy, it’s essential to:

• Evaluate potential partners and their strategic fit with your business.
• Conduct due diligence to assess both parties’ financial health and operational capabilities.
• Understand the legal considerations in structuring the deal to protect assets and investments.
• Consult with financial advisors to explore the best exit strategy tailored to your business needs.
• Document all processes thoroughly to ensure transparency and facilitate a smoother transition.

How do you assess when to exit?

Factors affecting the timing of an exit.

Assessing the right timing for an exit is pivotal to the success of your business exit plan . Various factors can influence this decision, including:

• Business Performance: Strong financial metrics and consistent growth can enhance your business valuation , making it an opportune time to sell.
• Market Conditions: Favorable market trends and economic indicators can significantly boost the sale price and the overall attractiveness of your business.
• Personal Readiness: Your own goals and readiness to transition play a crucial role in determining when to exit.
• Industry Trends: Changes in your industry, such as technological advancements or shifts in consumer preferences, can signal the right time to make your move.

Importance of market conditions in the decision-making process

The state of the market is a critical consideration when assessing exit timing. A robust economy often correlates with higher valuations and increased buyer interest. Conversely, a downturn may prompt you to reconsider your exit strategy. Key market conditions to monitor include:

• Economic Indicators: Keep an eye on GDP growth, unemployment rates, and consumer spending, as these factors can directly impact buyer sentiment.
• Industry-Specific Trends: Understanding your specific industry’s dynamics, such as competitive pressures and regulatory changes, can provide insights into the best time to sell.
• Buyer Demand: An increase in demand for businesses in your sector can create a favorable selling environment.

Evaluation of personal goals and readiness for transition

Recognizing your personal goals is essential when assessing the timing of your exit. Reflect on the following aspects:

• Future Aspirations: Consider what you want to achieve post-exit. Are you looking to retire, start a new venture, or pursue other interests?
• Emotional Attachment: Selling a business can be an emotional process. Evaluating your attachment and readiness to let go can influence your timing.
• Work-Life Balance: If you are feeling burnt out or overwhelmed, it may signal that it’s time to transition out of your current role.
• Regularly assess both market conditions and personal circumstances to stay aligned with your exit strategy.

What key components should be included in an exit strategy?

Importance of financial performance metrics and projections.

When crafting a successful exit strategy, incorporating financial performance metrics is crucial. These metrics not only reflect the current health of your business but also help potential buyers assess its value. Key performance indicators (KPIs) such as revenue, profit margins, and cash flow should be meticulously tracked and analyzed.

Moreover, creating financial projections for exit is essential. These projections provide insights into expected future performance, which can significantly influence a buyer's decision. It is recommended to include:

• Historical financial statements (at least three years)
• Detailed revenue forecasts
• Projected expenses and profit margins
• Cash flow forecasts

By presenting robust financial data, you not only enhance your business valuation but also build trust with prospective buyers.

Role of legal considerations and compliance in planning

Legal considerations are a fundamental aspect of any business exit plan . Ensuring that your business complies with local, state, and federal regulations can prevent unexpected roadblocks during the exit process. This includes reviewing contracts, licenses, and any pending legal matters that could complicate a sale.

Engaging with legal professionals can help identify potential liabilities and ensure that all legal documents are in order. Important legal components to consider include:

• Review of contracts with suppliers and customers
• Intellectual property protections
• Compliance with employment laws
• Tax implications of the sale

Failure to address these legal issues can lead to significant delays or even derailment of your exit strategy.

Necessity of a succession plan for seamless transition

A well-structured succession plan is vital for a seamless transition during the exit process. This plan outlines who will take over key responsibilities and how the business will continue to operate post-exit. Whether you're selling to a third party, transferring ownership to family, or pursuing a merger, having a clear succession plan ensures that the business remains stable and continues to thrive.

Key elements to include in your succession plan are:

• Identification of potential successors
• Training and development plans for successors
• Clear roles and responsibilities during the transition period
• Communication strategies for stakeholders

By preparing a comprehensive succession plan, you not only protect your assets but also provide peace of mind to buyers and employees alike.

• Regularly review and update financial projections to reflect changing market conditions and business performance.
• Consult with legal experts during the exit planning process to mitigate risks associated with legal compliance.
• Involve key team members in succession planning to ensure a smooth transition and operational continuity.

How can you prepare your business for a successful exit?

Strategies for enhancing business value prior to exit.

Preparing for a successful business exit begins with enhancing your business's overall value. This is crucial not only for achieving a favorable sale price but also for making your business more attractive to potential buyers. Here are some key strategies:

• Optimize Financial Performance: Ensure your financial records are accurate and up-to-date. Buyers will scrutinize your financial health, so having clear financial projections for exit can significantly bolster your business valuation.
• Streamline Operations: Identify and eliminate inefficiencies in your operations. A well-organized business that runs smoothly is more appealing to buyers.
• Diversify Revenue Streams: Relying on a single customer or market can be risky. Expanding your customer base or product offerings can enhance business value.
• Invest in Branding: A strong brand can command a premium price. Focus on building a reputable and recognizable brand to attract buyers.

Importance of streamlining operations and financial records

Streamlining operations and maintaining accurate financial records are two critical components of preparing for a business exit. This process not only improves the day-to-day functioning of your business but also increases its value. Here’s how:

• Operational Efficiency: Review your processes and look for ways to improve efficiency, such as adopting new technologies or refining workflows.
• Consistent Financial Reporting: Regularly update your financial statements and ensure compliance with accounting standards. This transparency builds trust with potential buyers.
• Documentation: Keep thorough documentation of all business procedures, policies, and financial transactions. This will ease the due diligence process during the sale.

Role of professional advisors in the preparation process

Engaging professional advisors is a vital step in the exit planning process. Their expertise can help you navigate the complexities of selling a business and ensure you maximize your exit strategy. Consider the following roles:

• Business Brokers: They can help you assess your business valuation and find potential buyers, making the selling process smoother.
• Accountants: Professional accountants can provide critical insights into financial projections for exit, ensuring your financial health is presented accurately.
• Lawyers: Legal advisors can help you navigate any legal considerations in your exit strategy, ensuring compliance and protecting your assets.
• Consultants: Business consultants can provide guidance on operational improvements and strategic planning as you prepare for a smooth business transition.
• Regularly review and update your exit strategy to reflect changing market conditions and personal goals.
• Consider conducting a mock sale to identify potential challenges and prepare accordingly.

What potential challenges should you anticipate during the exit process?

Common pitfalls and obstacles in executing an exit strategy.

Executing an exit strategy can be fraught with challenges that may derail even the best-laid plans. One of the most common pitfalls is underestimating the time and effort required to prepare for a successful exit. Many business owners assume that once they decide to sell their business, the process will be straightforward. However, this is often not the case. Factors such as business valuation, market conditions, and buyer readiness can complicate matters.

Another significant obstacle is failing to have a comprehensive business exit plan in place. Without a clearly defined exit strategy , owners may struggle with critical decisions about valuation, potential buyers, and the terms of sale. Additionally, emotional attachment to the business can cloud judgment, leading to misaligned expectations about its worth and the exit process itself.

Emotional challenges associated with selling or leaving a business

The emotional aspect of selling a business is often underestimated. For many owners, their business is not just a financial asset but a significant part of their identity and life’s work. The decision to exit can evoke feelings of loss, anxiety, and uncertainty about the future. This emotional turmoil can impact decision-making, leading to hasty choices that may not be in the owner's best interest.

Moreover, the transition can create tension among employees and stakeholders. Owners must grapple with the emotional weight of leaving their team and the culture they have built, which can lead to further complications during the exit process.

• Consider seeking support from a mentor or counselor to help navigate the emotional challenges of selling your business.

Legal and financial complexities that may arise during the exit

Legal and financial complexities are critical components that can affect the success of your exit strategy. The process of selling a business often involves extensive legal documentation, including contracts, disclosures, and compliance with regulatory requirements. Failure to properly handle these legal elements can result in disputes or delays that jeopardize the entire transaction.

Financially, business owners need to be well-versed in business valuation , as this will directly impact the selling price. Misunderstanding the financial implications, including tax liabilities and potential liabilities from past business activities, can lead to unexpected costs that diminish the proceeds from the sale.

Additionally, due diligence on the part of potential buyers can expose inconsistencies or issues that may have been overlooked, further complicating the exit process. Ensuring that your financial records are transparent and up-to-date is crucial for a smooth transition.

• Engage a qualified attorney and financial advisor early in the process to navigate legal and financial complexities effectively.

How can you ensure a smooth transition post-exit?

Importance of communication with stakeholders throughout the process.

Effective communication is crucial during the post-exit transition phase. Stakeholders—including employees, customers, suppliers, and investors—should be kept in the loop regarding the changes taking place. This transparency helps to build trust and ensures that everyone is aligned with the company’s new direction.

Key steps to foster communication include:

• Regular updates through meetings, newsletters, or emails.
• Establishing a feedback mechanism for stakeholders to voice concerns or ask questions.
• Clearly outlining the vision for the company’s future post-exit.

Strategies for maintaining relationships with employees and customers

Maintaining strong relationships with employees and customers is vital to safeguard the business's ongoing success. Employees may feel uncertain about their roles, while customers might worry about the continuity of service. To mitigate these concerns:

• Reassure employees about job security and provide clarity on their roles moving forward.
• Engage with customers to confirm that their needs will continue to be met, emphasizing any improvements or benefits from the transition.
• Consider hosting farewell events or meetings to express gratitude and encourage ongoing loyalty.

Planning for ongoing involvement or advisory roles after the exit

For business owners, the transition does not necessarily mean a complete severance from the company. Many opt to remain involved in an advisory capacity, which can provide stability during the transition. To effectively plan for this:

• Define the scope of your advisory role, including responsibilities and time commitments.
• Communicate your willingness to support the new leadership, ensuring they feel comfortable reaching out for guidance.
• Establish formal agreements detailing your ongoing involvement to avoid any misunderstandings.
• Regularly assess the emotional climate of your team and address any concerns promptly.
• Utilize customer feedback to adapt post-exit strategies that reinforce loyalty and trust.
• Consider training sessions for new leadership to help them understand the company culture and retain employees.
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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, 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.

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

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. 

What Are Common Exit Strategies Used by Startups?

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.

What Are Common Exit Strategies Used by Established Companies?

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.

What Exit Strategies Can Investors Use?

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 Wayback Machine. “ 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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Accounting client portal, financial client portal, exit planning strategies for a successful business transition.

As a business owner, you've likely poured years of hard work, dedication, and passion into building your business. The prospect of transitioning out of your business—whether through retirement, selling to a third party, or passing it on to the next generation—can be exciting and daunting. This is where exit planning comes into play and why having a well-thought-out strategy is crucial for a successful business transition.

Why Exit Planning Matters

The phrase “Can’t see the forest for the trees” often applies to business owners who are deeply immersed in the daily operations of their company. While managing the day-to-day decisions is essential, it's equally important to step back and consider the bigger picture—especially regarding your exit strategy. After all, one of the main reasons you're in business is to eventually realize the financial rewards of your efforts.

However, research from the Exit Planning Institute shows that “only 20%-30% of businesses that go to market actually sell, leaving up to 80% of those without solid options to harvest their wealth and ensure economic continuity into the next generation.” Without a clear exit plan , you risk leaving significant value on the table and could face unexpected challenges when it's time to transition.

When Should You Start Exit Planning?

The short answer is as early as possible. Exit planning is not something that should be left until you're ready to sell. In fact, the best time to start planning is years before you intend to exit the business. This allows you ample time to optimize your business for sale, address any potential issues, and ensure that your company is in the best possible shape to attract buyers or facilitate a smooth internal transition. Key times to consider exit planning include:

• Business Milestones: Major milestones such as achieving profitability, expanding operations, or securing significant clients/contracts are ideal moments to begin thinking about your exit strategy.
• Life Changes: Personal milestones, such as approaching retirement age or facing health issues, can also prompt the need for a solid exit plan.
• Market Conditions: Favorable market conditions, such as a booming economy or high demand in your industry, might make it an opportune time to start planning your exit.

Why Business Valuation is a Critical Component

A critical aspect of exit planning is understanding the true value of your business. Just as people get regular physical check-ups to monitor their health and catch potential issues early, a business valuation acts as a "check-up" for your company. It helps ensure that your expectations of your company's worth align with market realities.

A thorough business valuation considers multiple factors, including company-specific risks. These risks can be controllable or uncontrollable, similar to the advice you might receive from a doctor. Controllable risks are areas you can improve to enhance your business’s value, such as streamlining operations, diversifying revenue streams, or reducing dependency on key personnel. By addressing these risks proactively, you can minimize surprises during the sale process and increase the likelihood of a successful deal.

The Cost of Being Unprepared

Surprises are one of the leading reasons why business deals fall apart. According to Forbes , unexpected issues like third-party interference during the sale process are a significant barrier to closing deals. These issues often arise from a lack of preparation, including discrepancies in financial statements, unresolved legal matters, or unrealistic valuation expectations.

Benjamin Franklin famously said, “By failing to prepare, you are preparing to fail.” This adage rings true for business owners who neglect to plan for their exit. Without a comprehensive exit strategy, you may find yourself unprepared for the most important financial transaction of your life.

How Lutz Can Help with Your Exit Planning

At Lutz, we understand that exit planning is a complex and deeply personal process. Our team of experienced advisors is here to help you navigate every step of the journey, from initial valuation to final sale . We work closely with you to develop a tailored exit strategy that meets your unique goals and ensures a smooth transition. Contact us today to learn more about how we can assist you in planning for the future.

• Analytical, Achiever, Context, Competition, Learner

Ryan McGregor

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