How to plan a Business Exit Strategy?
What is a Business Exit Strategy?
A business exit strategy is a plan of action for someone who wants to leave a business once it
generates a sizable profit or when it starts to lose money. When they join a company, investors,
business owners, traders, or venture capitalists may have exit strategies in place. When
someone leaves a commercial venture, an exit strategy is used to minimize losses or maximize
personal profit.
It’s a good idea to have an exit strategy in case of a losing investment or significant changes in
the market, regardless of whether you’re a small business owner or the CEO of a corporation.
You should get a business valuation, which provides prospective buyers with a summary of the
company’s financials to establish a reasonable value for the company to develop an exit plan.
Purpose of a Business Exit Strategy
Entrepreneurs (founders) and investors who have made significant financial commitments to
startup enterprises transfer ownership of their company to a third party via a business exit plan. It
is how investors receive a return on their investment in the company.
Being bought by another business, selling equity, or a management or staff buyout are examples
of common departure methods.
Who Needs a Business Exit Strategy?
A defined company exit strategy is necessary for anyone looking for venture capital funding or
angel investment.
Even if your business is small, it’s a good idea to plan and consider how you will transfer
ownership of the company in the future, regardless of whether you decide to sell the company or
try to grow it and seek an acquisition. There is never a bad time to plan.
Type of Exit Strategy is Right for your Business
You may get a sense of the most typical escape tactics from this list. Your company’s nature, as
well as your financial and strategic objectives, will determine the type of plan you should use.
Here are a few of the most widely spread:
Mergers and Acquisitions
Businesses and entrepreneurs might enjoy using acquisition as an exit plan. You may draw in
quality buyers and have the upper hand in pricing discussions if you’ve planned for a high
business value.
Initial Public Offering (IPO)
When a private company starts offering its shares to the public, this is known as an IPO. For
startup businesses seeking to grow, this is a well-liked exit plan. Following an IPO, a business
owner has the option of either selling the company or staying on board.
Acquires
Acquire strategies are built on attracting a buyer who is eager to hire the talent of your
company. If you’ve organized your company such that your employees have marketable skills,
you may be able to get a higher asking price from potential buyers who want to buy your
team.
Selling your control
Selling your stock to your partner is an efficient exit plan if you are not the only proprietor of your company. If you work in a family business, you may create a succession plan that lays out a plan for a relative or close friend to take over the company.
Bankruptcy
Declaring bankruptcy is the least desirable way to get rid of unprofitable businesses, hence it
is often only used as a last resort. When your business declares bankruptcy, whatever debts it
has racked up will not be your responsibility; rather, your assets will be taken to payoff those
bills.
Management Buyouts
A member of the management team buys the company from the owner in a management
buyout. This technique might be an easy setup for a business transfer because the existing
management team will already be familiar with the company.
Liquidation
The preferred exit plan for a business that is no longer profitable is liquidation. This strategy
lays out a strategy for selling every piece of property and asset the company owns to pay
debtors and stakeholders.
Tips for Preparing a Business Exit Strategy
Ask for a Business Valuation
You’ll need to determine the value of your company while developing your exit strategy. To determine the value of your business, strategists may assist you in conducting the necessary research for a business evaluation. This might help you in guiding potential buyers’ expectations.
Think about the Future Path
What do you hope to achieve with your departure strategy? Do you still want to have some say
in how the company is run? Do you simply want to leave? Strategies like succession planning
or management buyouts can help with consistency during the business transition and let you
maintain contact with your business if you’re quitting a long-term venture.
Take into account the Best and Worst Case Scenarios
You should take into account all possible results when creating your exit strategy and create
backup plans as necessary. Think about the steps you’ll need to take if your company sells for
less (or more) than you anticipated. Consult with strategists who can help you design exit plans
that are consistent with your financial objectives and who can help you comprehend your
unique business or investment interests.
Planning for the Future
Consider your exit strategy while you put together your company plan or get ready to make your
first investor pitch. To ensure that the value of your company is accurate, make sure your
financials are current and that you are examining them.
Ask your strategic business adviser for advice if reaching specific financial milestones is a need
for your exit to be effective. For more details, see other articles. There are further things you can
do to set up your company for acquisition and other exits.
