Exit Strategy: Types & Examples of Exit Strategies For Small Business

exit strategy, example, business, what is an exit strategy
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You may not seem to choose an exit strategy for your company while you are just starting, but it is a key component of setting up a company. This essay will therefore demonstrate the importance of knowing what an exit strategy is, how to apply it in your business even as a start-up, and also the example you can follow to write your own strategy. 

Exit Strategy 

Exit strategies are plans devised by business owners, investors, traders, and venture capitalists to liquidate their ownership in a financial asset if specific conditions are met. An exit strategy defines how an investor plans to leave a certain venture.

Types Of Exit Strategies

  • Merger — you have to remain a part of the company.
  • You can sell to another merchant or competitor if you want to give up ownership.
  • Personal relations should be dealt with cautiously when selling to a known buyer such as a family member, friend, employee, or colleague.
  • Liquidation — the complete closure, with creditors paid before investors.

When Should Exit Strategies Be Used?

According to an exit strategy.

  • A non-profitable business should be closed down.
  • Execute an investment or company activity once profit targets have been met.
  • Close a firm if the market conditions change dramatically.
  • Sell a business or an investment.
  • Sell a failing company to minimize your losses.
  • Reduce or relinquish control of a company.

The Importance Of A Plan Of Exit

  • It may seem counterintuitive to develop exit strategies for a business owner. Why would you want to sell an e-commerce business with expanding sales, for example?
  • Even if you don’t plan to sell your company right now, you should consider an exit strategy. Consider the following scenario:
  • Personal health issues or a family crisis: Personal health issues or a family crisis may influence you. These worries can take your focus away from running your firm effectively. An exit strategy would aid in the smooth operation of the business.
  • An economic downturn: Economic downturns can have a significant impact on your firm, so you may want to avoid expecting the worst.
  • Unexpected offers: Major corporations may be interested in acquiring your business. Even if you do not want to sell the company right now, if you have contemplated an exit strategy, you will be able to have an educated conversation.
  • A well-defined goal: You’ll have a well-defined goal if you have a well-defined exit strategy. Your exit plan has a significant impact on your strategic decisions.

Now, let us look at the example of an exit strategy.

Exit Strategy Example

Here is some exit strategy example we will be looking at. Let us go briefly to them for a better understanding of what exit strategy is all about.

An example of exit strategy is a company that will be sold to my son, who is getting a business degree and expects to take over the company in the future. After completing his degree in 2021, he is expected to begin working for the company and eventually move to a managerial position.

Another example of an exit strategy, ABC Ltd’s best exit strategy will be a sale to another local company looking to expand their business by acquiring our client base. This long-term strategy will be implemented at the same time as my retirement. If you are interested, please email Mr. Smith.

The following are some of the most common exit mechanisms for investors or owners of various sorts of investments:

  • In the years coming up to your company’s departure, increase your own salary and pay yourself bonuses. Make assured, however, that you are capable of fulfilling your obligations. This is the most straightforward business departure strategy.
  • Sell all of your stock to existing partners when you retire. You’ll get money from the sale of your stock and be able to leave the company.
  • You should liquidate all of your assets at market value. Use the money to pay off bills and save the rest.
  • Make an IPO (initial public offering) (IPO).
  • Merge with another firm or get bought out.
  • Sell your company outright.
  • Give the business to a family member.

Exit Strategy Business

Many entrepreneurs start their enterprises with the goal of quitting after a certain amount of time. It doesn’t mean they aren’t hardworking businessmen. It only means they have a plan.

As a result, when planning your business exit, take in mind the following:

  • Will you make money when you sell your business?
  •  How much do you hope to earn?
  • Then what happens to your company? 
  • Will it carry on with a new owner?
  • How long until you leave? 
  • How long is the transition period?

Let’s explore some of the different options you have in terms of a business exit strategy.

Let’s examine some of your options for business exit.

#1. Preserving Family Legacy

Many business owners desire to maintain their company in the family for generations, which means planning to pass it on to a child or other relative. This may seem like an intriguing company exit strategy, but make sure your family connections can handle the volatility and stress of business ownership.

While it may appear that keeping the firm in the family for generations is the best way to maintain your industry reputation, it is important to be realistic about who is the best person to run it.

Advantages:

  • You can choose and prepare the person who will run your business after you.
  • You may be able to stay on in a transitional or ongoing advisory role.

Disadvantages:

  • You might not be able to find a family member willing (or capable) to take over.
  • This process may cause emotional, financial, and general stress in your family.
  • Employees, business partners, or investors may not be supportive.

#2. Merger Or Acquisition

In a merger or acquisition business exit strategy, your company is bought out or merged with another company that shares your ambitions. Depending on who you merge with or sell your business to, this technique may allow you to reduce your engagement or even walk away. Unlike an IPO, when your firm is valued based on its industry, this exit option allows you to negotiate the sale price.

Advantages:

  • You can take a total break from your business (if you so desire).
  • You can haggle over the terms, price, and other aspects of your deal.

Disadvantages:

  • This is a time-consuming and costly strategy.
  • Your business may cease to exist, causing many negative consequences.

#3. Engage In An “Acquihire”

Unlike a conventional acquisition, a firm purchases your company to obtain access to its talented or skilled people. Your “legacy” may not live on in name, but it will help your employees. In this instance, you’d need to negotiate circumstances with your employees’ specific needs in mind.

Advantages:

  • You’ll be able to negotiate the terms of this unique transaction, which should benefit you and your employees.
  • You won’t have any unfinished jobs or obligations to worry about.

Disadvantages:

  • Like other M&A transactions, this one can be costly, time-consuming, and complex. You may also be unable to find a buyer.
  • And you’ll be losing your company’s legacy while you rebuild it.

#4. Manager Or Employee Buyout

It’s likely that when you’re ready to sell your firm, employees will want to buy it from you. Because they know you and your organization, this strategy may result in a smoother transition and greater devotion to your company’s tradition. Also, because they already work with you and know you well, they may be more flexible with your involvement—perhaps as a mentor or advisor.

Advantages:

  • You can assign your responsibilities to a colleague you know and trust.
  • Because you’re still selling the business, you should profit.
  • They are more likely to find a solution if you want to be into it.
  • Your company’s legacy will be intact.

Disadvantages:

  • You may not be able to find an employee or management willing to buy your company.
  • These management changes may be difficult to implement and may harm present clients.

#5. Consider Selling To A Business Partner Or Investor

If you’re not the sole owner, you can sell a portion of your firm to a partner or investor. According to the buyer, this is a reasonable “business-as-usual” plan.

Advantages:

  • Your company’s legacy will be preserved, and business should go on as usual.
  • You can leave your company and profit from the sale of your stock.
  • With a buyer you know and have worked with before, the transaction should go much more smoothly.

Disadvantages:

  • Your stock may not find a willing buyer or investor.
  • Staying connected in your business may become more difficult.
  • The procedure may cause issues between you and your partner or investment.

#6. Take Your Business Public With An IPO

Many business owners dream of selling their firm for a large profit. This approach isn’t for everyone when it comes to small business exit strategy planning—the right business conditions are essential.

Even if your company is operating well, your industry may not be appealing to stock purchasers, lowering your company’s worth. Not to mention that IPOs are incredibly rare: United States public corporations peaked at over 8,000 in the late 1990s, but have subsequently fallen to approximately 3,600. [2]

If you can afford it and the conditions are right, an IPO can be very profitable.

Advantages:

  • This is the business departure option most likely to bring you a big profit.

Disadvantages:

  • This is one of the most difficult techniques to leave because it requires a lot of time, effort, and money.
  • Going public also means fulfilling certain standards (such as business valuation) and completing certain processes.
  • A successful IPO is rare, especially for many small and medium-sized businesses.

#7. Liquidate Your Company

A detailed exit strategy company plan. Liquidating your corporation means selling your assets. But liquidation doesn’t always mean defeat; it can mean the end of a chapter.

Don’t forget that the money you make will also be used to pay off debts and distribute profits to shareholders. Consider the impact on your staff, clients, and consumers.

Advantages:

You’ll never have to worry about the business again because you’ll be free of a legacy’s ties.

This is one of the simplest and quickest business departure options.

Disadvantages:

This method is also unlikely to yield the best ROI.

This plan may exclude employees, partners, clients, customers, and anybody else involved in your firm’s daily operations.

#8. Bankruptcy

When it comes to small business exit strategy planning, you can’t plan for this last option. Finally, no one wants to file for bankruptcy, but it may be your only option (or you never managed to plan ahead with any of the other exit strategies listed above).

You may be forced into bankruptcy before you’re ready, but it’s not the end of the world. If things get very bad, you’ll be free of commitments and business responsibilities, even if assets are confiscated and credit is damaged.

Sadly, one of the major risks of starting and running a business is bankruptcy. So, if bankruptcy is an option for you, be sure you understand what happens when you file Chapter 7, 11, or 13 company bankruptcy.

Advantages:

  • This official act releases you from your company’s obligations.
  • Leave your business and start restoring your credit.

Disadvantages:

  • Bankruptcy may not be able to eliminate all debts.
  • A bankruptcy filing will almost probably affect your future borrowing abilities.
  • This strategy will almost surely result in the premature end of relationships with employees, clients, and customers.

Business Exit Strategy 

An entrepreneur’s exit strategy is to sell their company to investors or another company. An exit strategy allows a business owner to reduce or liquidate his ownership while still making a profit.

In contrast, an exit strategy (or “exit plan”) allows the entrepreneur to minimize losses. A venture capitalist, for example, can use an exit strategy to plan for a cash-out. Entrepreneurs design exit strategies to sell their companies to other investors or firms. Also If the company is lucrative, an exit strategy allows the owner to sell a stake or completely exit while still making money.

What Is The Best Business Exit?

The best exit strategy depends on the business kind and size. A medical office partner may benefit from selling to another partner, whereas a sole proprietor may benefit from making as much money as possible before closing the doors. If the company has other founders or substantial owners than the founders, their interests must be considered as well.

Exit Strategy And Liquidity

Varying business departure strategies provide different levels of liquidity. Selling ownership through a smart acquisition, for example, can generate the most cash in the shortest time. An IPO may not be the greatest exit plan during a recession, and a management buyout may not be appealing to a buyer when interest rates are high.

What Is An Exit Strategy? 

An exit strategy is a plan to get out of a situation after attaining a goal or avoiding failure.

Exit strategies are used by investors, traders, venture capitalists, and business owners to liquidate financial assets or sell tangible business assets if certain criteria are met. An exit strategy can be utilized to liquidate a losing investment or business. The exit strategy, in this case, is to limit losses.

Following the achievement of a profit goal, an exit strategy may be implemented. A drastic change in market conditions due to a catastrophic event may also be a reason to depart.

Market participants can enhance their trading by reducing risk and removing emotion from their decisions. Before trading, an investor should decide where they will sell for a loss and where they will sell for profit.

What are the 5 exit strategies?

  1. Merger — you have to remain a part of the company.
  2. You can sell to another merchant or competitor if you want to give up ownership.
  3. Personal relations should be dealt with cautiously when selling to a known buyer such as a family member, friend, employee, or colleague.
  4. Liquidation — the complete closure, with creditors paid before investors.

What is an example of an exit strategy?

For an example of an exit strategy, this company will be sold to my son, who is getting a business degree and expects to take over the company in the future. After completing his degree in 2021, he is expected to begin working for the company and eventually move to a managerial position.

Why exit strategy is important?

Exit strategies assist in defining success and provide a schedule for monitoring your progress. Because the current owner will be steering the business toward their predetermined desired goal, having an exit strategy boosts the value of the business.

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