writing an exit strategy for a business plan

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How to Write a Business Exit Plan

Create a profitable plan from the start

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

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

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

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

Long-Term Involvement

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

Short-Term Involvement

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

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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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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/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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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. 

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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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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.

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 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 legacy and continuity 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.

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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

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.

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Exit Planning Explained - Process, Strategy, and More

If you are a business owner, you may have wondered what will happen to your business when you decide to retire, sell, or transfer it.

How will you ensure you get the best value while exiting the business? How will you protect the interests of your family, employees, customers, and other stakeholders?

In this guide, we will explain the exit planning process, the different types of exit strategies, and the role of advisors in the exit planning process. We will also provide tips and best practices for creating and executing a successful exit plan.

You may also want to look at a few success stories from our past clients for some inspiration before you start reading.

What is Exit Planning?

Exit planning is the process of preparing for the eventual transfer or sale of a business while considering the owner's personal and financial goals. It involves implementing various decisions and actions that enable a smooth and organized exit.

Exit planning is not a one-time event but a dynamic process that adapts to the business owner's and business's changing needs and circumstances. It requires a clear vision, proper assessment, and a strategic approach.

What Are The Benefits of Exit Planning?

Exit planning can benefit the business seller in many ways, from safeguarding their interests to facilitating a smooth deal when the time comes.

By planning ahead, the owner can increase the attractiveness and profitability of the business and reduce the risks and liabilities that may lower the business's value . The owner can also optimize the timing and structure of the exit and take advantage of the tax incentives and exemptions that may apply.

Business owners can ensure that their personal and financial goals are aligned with the goals and vision of the business and that they have a clear and realistic roadmap for achieving them.

One can anticipate and mitigate the potential challenges and obstacles that may arise during the exit process, such as legal disputes, regulatory issues, and emotional stress. They can also prepare for the transition and the future by securing their income, assets, and lifestyle and exploring new opportunities.

The owner can ensure the continuity and stability of the business by developing and retaining key employees and managers and transferring the knowledge and skills essential for the new ownership's success.

One can achieve a sense of accomplishment by exiting the business on their terms and conditions. The owner can also enjoy a smooth, stress-free exit and a rewarding and satisfying future.

Whether you are planning to exit your business in the near or distant future, exit planning is a vital step you should consider.

TL;DR - Overview of the Exit Planning Process

Exit planning is the process of preparing for the eventual transfer or sale of a business. It can be a planned event or arise from a contingency where a business owner wants to change ownership for some reason.

Developing a good exit plan that covers factors like tax compliance and stakeholder share is crucial, and a good M&A advisor can help both parties build terms and negotiate a fair deal.

What Role Do Advisors Play in the Exit Planning Process?

Rightly known as Certified Exit Planning Advisors, these professionals can provide expert advice and guidance to the business owner during exit planning. They can help the owner with various aspects of the exit planning process, such as:

Assessing the current situation and identifying the objectives and preferences of the owner

Exploring and evaluating the different exit strategies and options

Developing and implementing a customized and comprehensive exit plan that meets the needs and expectations of the owner

Coordinating with other advisors and stakeholders involved in the exit process

Monitoring and adjusting the exit plan as needed to respond to changing circumstances and opportunities

Exit planning advisors often work with a team of other professional who help in the process, who may include:

Accountants: They can help the owner with the financial and tax aspects of the exit, such as valuing the business, structuring the deal, minimizing the taxes and fees, and preparing the financial statements and reports.

Lawyers: Lawyers can help the owner with the legal aspects of the exit, such as drafting and reviewing the contracts and agreements, protecting the intellectual property and confidential information, resolving disputes and claims, and complying with the laws and regulations.

Brokers: They help with the marketing and selling aspects of the exit, such as finding and qualifying the potential buyers, negotiating the terms and conditions, facilitating the due diligence and closing, and maximizing the price and value.

Bankers: Bankers can help the party with the financing and funding aspects of the exit, such as securing the loans and equity or arranging escrow.

Consultants: They can help the owner with the strategic and operational aspects of the exit, such as improving the business's performance and sustainability.

Advisors can play a vital role in the exit planning process, providing the owner with the knowledge, skills, and resources necessary for a successful and satisfying exit. The owner should pick suitable advisors, maintain control and responsibility over the exit planning process, and make the best decisions for themselves and their business.

Exitwise can help you find the right advisors for your exit planning and build the right M&A team for a successful team. Check out our detailed explanation of how our process works and how we can help create your dream M&A team.

5 Key Steps in Developing an Exit Plan

Developing an exit plan helps you achieve your personal and financial goals and ensure a smooth and successful exit from your business.

Here are five key steps that you should follow to create and execute an effective exit plan:

Step 1: Establish Your Objectives

Identify your reasons and motivations for exiting the business and your desired outcomes and benefits. Consider your personal, financial, and professional goals and your family, lifestyle, and succession preferences.

Step 2: Determine the Value of Your Business

Estimate your business's current and potential value based on various valuation methods and market factors. Identify your business's value drivers, detractors, and the opportunities and threats that may affect the value. You can use our business valuation calculator for an accessible overview of your business's current value.

Step 3: Choose Your Exit Strategy

Explore and evaluate the different exit strategies and options available, such as selling, merging, passing, or liquidating the business. Weigh the pros and cons of each option and select the one that best suits your objectives, situation, and market conditions.

Step 4: Develop Your Exit Plan

Create and implement a comprehensive and customized exit plan outlining the specific actions and initiatives needed to execute your chosen strategy. Include a contingency plan, a timeline, and a budget for prompt execution.

Step 5: Execute Your Exit Plan

Execute your exit plan with the help of an exit planning advisor to ensure maximum compliance and value. Monitor and adjust your exit plan to respond to changing circumstances and opportunities and ensure success and satisfaction.

8 Exit Planning Strategies Explained

Check out these different exit strategies, and you may get an idea of what best suits your business.

1. Employee Stock Ownership Plan (ESOP)

A strategy where the owner sells some or all of their shares to a trust set up for the benefit of the employees. The employees become the business owners, and the owner receives cash and tax benefits. This strategy can be used to reward and motivate the employees and preserve the business's culture and legacy.

2. Merger with Another Business

In this arrangement, the owner combines their business with another business with complementary or synergistic assets, capabilities, or markets. The owner receives shares or cash from the merged entity and may retain some control or influence over the business. This strategy can create value for both parties and increase the chances of success in the future.

3. Management Buyout (MBO)

MBO is a strategy where the owner sells their business to the existing management team, who may use debt or equity financing to fund the purchase. The owner receives cash and may retain some equity or involvement in the business. This strategy can be used to transfer the ownership to the people who know the business best and to ensure continuity and stability.

4. Initial Public Offering (IPO)

IPO is a strategy where the owner sells some or all of their shares to the public through a stock exchange. The owner receives cash and may retain some ownership or control over the business. IPO strategy can raise capital and enhance the business's reputation and visibility.

5. Selling to a Third Party

Here, the owner sells their business to an external buyer, an individual, a group, or a company. The owner receives cash and may negotiate the terms and conditions of the sale. This strategy can be used to maximize the business's price and value and exit the business quickly and thoroughly.

6. Family Succession

The business owner transfers the ownership or control of the business to their family members, who may be their children, siblings, or relatives. The owner may receive cash, shares, or other assets from the family and maintain some involvement or influence in the business. This strategy can be used to preserve the business's legacy and culture and maintain ownership in the family.

7. Recapitalization

It is a strategy where the owner restructures the business's capital structure by changing the mix of debt and equity. The owner may use the debt or equity issuance proceeds to pay themselves a dividend or reinvest in the business. This strategy can increase the return on equity and prepare the company for a future exit.

8. Liquidation

In liquidation, the owner sells the assets and liabilities of the business and distributes the proceeds to themselves and other stakeholders. The owner may receive cash or other assets and terminate business operations. This strategy can be used when the business is no longer viable or profitable or when the owner wants to retire or pursue other interests.

What Are the Tax Implications of Different Exit Strategies?

Disclaimer: The information provided here is for general guidance only and does not constitute professional tax advice. You must consult a local tax professional before making any final decisions regarding tax matters.

The tax implications of different exit strategies can vary depending on the structure of your business, the nature of your exit, and the applicable tax laws. Here are some common exit strategies and their tax considerations:

Selling the Business

Selling your business can lead to capital gains and regular income taxes. Depending on how long you've held the business, capital gains may be classified as short-term or long-term, each with its tax rate. Additionally, you might be subject to depreciation recapture taxes if you've claimed depreciation deductions on your business assets.

Passing the Business to Heirs

Succession planning involves passing on your business to family members or other heirs. While this strategy can potentially lead to estate taxes, the tax implications can be minimized through careful planning, including using trusts and gifting strategies.

Liquidating the business

Closing down your business involves liquidating its assets and settling its liabilities. This process can trigger capital gains, ordinary income taxes, and potential taxes on any accumulated earnings in the business.

Merging or Acquiring

Mergers and acquisitions can lead to a range of tax implications, including taxes on gains from the sale of assets or stock, changes in ownership structures, and potential changes in tax attributes like net operating losses.

Exit Planning Statistics

Let’s look at some exciting findings from recent surveys and reports on exit planning statistics:

According to the BEI 2022 Business Owner Survey , 16% of business owners plan to exit their businesses in fewer than five years, 37% plan to exit within 5–10 years, and 47% plan to exit in more than ten years. When asked how the COVID-19 pandemic impacted their plans to exit, more than 50% said it made no impact. Only 11% said it made them want to exit their business sooner.

The EPI 2023 State of Owner Readiness Research report says that 52% of business owners include written detailed personal planning in their exit strategy, compared to only 9% in previous surveys. This indicates that owners consider exit planning earlier in their ownership lifecycle and expect their advisors to support those efforts.

Data from the Gitnux 2024 Succession Planning Statistics estimates that only 30% of small businesses successfully sell, leaving 70% without a buyer or successful plan for what happens next. The report also suggests that owners with a formal succession plan are more likely to achieve higher business value, lower taxes, and greater personal satisfaction.

Frequently Asked Questions (FAQs)

This comprehensive FAQ section will guide you through the answers to some common questions about exit planning.

When Should an Owner Start the Exit Planning Process?

Owners may have different objectives, timelines, intentions, and market conditions for their exit. However, a general rule of thumb is to start the exit planning process at least 3 to 5 years before the desired exit date. It allows enough time to assess the current situation, explore the options, develop and implement the plan, and execute the exit strategy. Starting the exit planning process early also helps increase the business value and reduce the risks and uncertainties.

How Does Exit Planning Affect Business Valuation?

Exit planning can positively impact the business valuation, as it can motivate the ownership to improve the business's performance and sustainability and enhance its attractiveness and profitability for potential buyers or investors. Exit planning can also optimize the exit's timing and structure and take advantage of the tax incentives and exemptions that may apply.

Can Exit Planning Help in Reducing Business Risks?

Exit planning can help reduce business risks, as it can help anticipate and mitigate the potential challenges that may arise during the exit process, such as legal and regulatory issues, market fluctuations, and operational disruptions.

Exit planning is a vital process for any business owner who wants to maximize the value of their business and achieve the best potential deal for their exit. There are various benefits of exit planning and several strategies to carry it out. It all depends upon the buyer's and seller's preferences and objectives.

Let us help you with your exit plan if you need more assistance. We will help you create a team of experienced and professional M&A advisors who can guide you through every step of the exit planning process. Contact us now to schedule a consultation .

Brian graduated from Michigan Technological University with a BS in Mechanical Engineering and as Captain of the Men's Basketball Team. After a four-year stint at Deloitte Consulting, Brian returned to school to get his MBA at the University of Michigan. Brian went on to join his first startup, a Ford Motor Company Joint Venture, and cofound a technology and digital marketing services agency. Through those experiences, Brian embraced the opportunity to provide M&A education and support to his fellow business owners as they navigated their own entrepreneurial journeys.

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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 Strategy: Definition, Examples, Best Types

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.

What Is a Business Exit Strategy?

A business exit strategy is an entrepreneur's strategic plan to sell his or her ownership in a company to investors or another company. An exit strategy gives a business owner a way to reduce or liquidate his stake 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 entrepreneur to limit losses. An exit strategy may also be used by an investor such as a venture capitalist in order to plan for a cash-out of an investment.

Business exit strategies should not be confused with trading exit strategies used in securities markets.

Key Takeaways

• A business exit strategy is a plan that a founder or owner of a business makes to sell their company, or share in a company, to other investors or other firms.
• Initial public offerings (IPOs), strategic acquisitions, and management buyouts are among the more common exit strategies an owner might pursue.
• If the business is making money, an exit strategy lets the owner of the business cut their stake or completely get out of the business while making a profit.
• If the business is struggling, implementing an exit strategy or "exit plan" can allow the entrepreneur to limit losses.

Understanding Business Exit Strategy

Ideally, an entrepreneur will develop an exit strategy in their initial business plan before actually going into business. The choice of exit plan can influence business development decisions. Common types of exit strategies include initial public offerings (IPO) , strategic acquisitions , and management buyouts (MBO) . Which exit strategy an entrepreneur chooses depends on many factors, such as how much control or involvement (if any) they want to retain in the business, whether they want the company to be run in the same way after their departure, or whether they're willing to see it shift, provided they are paid well to sign off.

A strategic acquisition, for example, will relieve the founder of his or her ownership responsibilities, but will also mean the founder is giving up control. IPOs are often seen as the holy grail of exit strategies since they often bring along the greatest prestige and highest payoff. On the other hand, bankruptcy is seen as the least desirable way to exit a business.

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

Business Exit Strategy and Liquidity

Different business exit strategies also offer business owners different levels of liquidity . Selling ownership through a strategic acquisition, for example, can offer the greatest amount of liquidity in the shortest time frame, depending on how the acquisition is structured. The appeal of a given exit strategy will depend on market conditions, as well; for example, an IPO may not be the best exit strategy during a recession, and a management buyout may not be attractive to a buyer when interest rates are high.

While an IPO will almost always be a lucrative prospect for company founders and seed investors, these shares can be extremely volatile and risky for ordinary investors who will be buying their shares from the early investors.

Business Exit Strategy: Which Is Best?

The best type of exit strategy also depends on business type and size. A partner in a medical office might benefit by selling to one of the other existing partners, while a sole proprietor’s ideal exit strategy might simply be to make as much money as possible, then close down the business. If the company has multiple founders, or if there are substantial shareholders in addition to the founders, these other parties’ interests must be factored into the choice of an exit strategy as well.

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Your business exit strategy in 9 steps

You’ll leave your business some day, so how do you make sure it’s on the best possible terms?

What is a business exit strategy?

An exit strategy is a plan for wrapping up your involvement in a business. For most people, that means readying the business for a change of owner. Executing a well thought-out exit strategy can increase your sale price, while ensuring the business continues to thrive after you’ve left. This can also be called succession planning. What does it involve?

Succession planning definition and goals

The aim is to leave your business in the best possible shape for a new owner. That means it should be operating at peak profitability, the books should be spick and span, and all your processes will be written down so a stranger can come in and run the place. Oh, and the business won’t need you anymore – no matter how important you once were.

It takes years to do all this. That’s why it’s never too soon to start on your succession plan, or exit strategy.

How to sell a business

Business advisors and brokers recommend these nine steps to help get a succession plan in place.

1. Pick a target buyer

There will be different priorities depending on who you're selling to. If it's family, take pains to make everything transparent and fair. You don’t want the transaction to cause tension or conflict between children. If you’re selling to employees, be prepared for staggered payments. They’ll probably start with a deposit and pay you the rest from business income. If you sell to the highest bidder, then get all your records in order as otherwise they won’t have any idea how you operate, or what sort of money you make.

2. Decide how fast you’ll want out

Some buyers, such as family or employees, won’t have the cash to buy you out straight away. You might have to keep an interest in the business and stay involved to protect your investment. If that’s the case, you’ll need to negotiate consulting fees. If you want a clean break, you’ll probably be better off selling on the open market. That may not work if you have a client services business, however. Buyers of those types of businesses will expect you to stay around to help ensure clients don't leave.

3. Get your accounting sorted

Smart buyers will ask to see at least two years worth of clean and dependable financial records. If your bookkeeping isn't all it could be, get it fixed now. And if there’s something you can do to improve profitability, do it as soon as possible. You want that upswing to show in your accounts as a sustainable trend rather than as a recent spike. Use our balance sheet template to help get things in order.

4. Make yourself redundant

No one’s going to buy your business if it can’t survive without you. If you have employees, give them the training and authority they need to succeed. Scale back your involvement. Be less available to customers and clients. Delegate big decisions. Go into work less often.

5. Ensure your business is a well-oiled machine

Ensure you have formal (and efficient) processes for getting work done. Who does what, when, and how? Make sure there are protocols to guide all this. Potential buyers will be impressed if some things in your business happen automatically.

6. Write down how everything happens in your business

Write a “how to” manual for your business, so that a stranger could pick up the reins and run everything tomorrow. Record every process, including admin. Make a note of the steps you follow for each of these tasks. While you’re at it, write formal job descriptions for employees. And create templates for tasks that are repeated in your business.

7. Figure out how to drive up the valuation of your small business

What are the things that make your business great? Do you have a really outstanding product? Loyal customers? Amazing intellectual property? Find the strengths in your business and grow them, so that they become even more valuable. Similarly, figure out the biggest holdbacks and fix them. You’ll need someone from outside the business to provide this assessment. Get your accountant involved. If they don’t have the particular skills you need, they may be able to recommend someone who does.

8. Get a guideline business valuation

You won’t know what you’ll get for your business until the day it’s sold, but you can get a rough estimate. Ask for a professional opinion. Your accountant should be able to introduce you to someone, or you could search for a local business broker. A guideline valuation will help satisfy your curiosity and set realistic expectations. If they predict a lower price than you’d hoped, you might delay your exit, and spend some time building value in the business.

9. Work on a sales pitch

Buyers need to be excited by your business, so come up with an elevator pitch that captures the essentials. Craft a story that explains why you got started, how you’ve grown, and what you’ve achieved. Paint a positive picture of the future, too, but keep it real. Incorporate stats and facts to support what you’re saying.

Exits happen

Exiting your business is inevitable. It will happen whether you’re in control of it or not. So make a plan now and start getting your business ready for the next owner. It’ll help you command a better price, and increase the chance that your business survives. Learn more about selling your business.

And remember that anything you do to benefit your future buyer, will also benefit you. You’ll have a more efficient, profitable and easier to manage business.

It’s never too soon to build a business exit strategy. Speak to your accountant or business advisor today. If you don’t have an accountant, look for one in the Xero advisor directory .

Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the content provided.

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Business Exit: Planning

When and how to write a business plan exit strategy.

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What is exit planning, when to plan your exit strategy , fast-track your business exit with ansarada deals ™ — start for free today , types of exit strategies.

There are eight common business exit strategies:  

• Merger and acquisition exit strategy (M&A deals)
• Selling your stake to a partner or investor
• Family succession
• Management and employee buyouts (MBO)
• Initial Public Offering (IPO)
• Liquidation

Planning exit strategies for a failing business

How to prepare an exit strategy

Step 1: determine length of involvement.

The first step in business exit planning should be to ask yourself, how long do you want to stay involved in the business? If you envision your involvement being long-term, you might plan to liquidate or sell your shares. If you’re only in it for the short-term, you could merge, be acquired, or even IPO.  

Step 2: Assess financial goals

Step 3: identify creditors requiring payment .

Do you have investors or creditors to pay? If you do, you’ll need to make sure those are covered as part of your exit planning.

Step 4: Research different types of exits

Step 5: write your exit plan, once you’ve chosen the exit strategy for you, be sure to include detail on the following, and what will happen to them as part of the exit strategy, in your business plan. this is important for business continuity.   .

• Your personal & business financials
• Your investors and stakeholders
• New leadership
• Your employees
• Your customers

Exit strategy business plan template

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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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 plan for the transition of business ownership either to another company or investors

What is a Business Exit Strategy?

A business exit strategy is a plan for the transition of business ownership either to another company or investors. Even if an entrepreneur is enjoying good proceeds from his firm, there may come a time when he wants to leave and venture into something different.

When such time comes, the business can be sold, left in the hands of new management, or acquired by a larger company. Even if it will be decades before the entrepreneur can sell his business, what he does in the present moment can set it up for a smooth exit or make the process more challenging.

What Should Be Considered In An Exit Strategy?

While different businesses will require different tactics in an exit strategy, there are key elements that can be helpful across the board. These elements factor into play the company’s financial circumstances, market conditions , objectives, and timeline.

1. Objectives

One aspect that should never be missed in a business exit strategy is the owner’s individual goals. Upon exiting the business, is the owner interested in getting profits or does he also want to leave a legacy? Establishing the purpose of exiting the company helps to identify the specific objectives and activities to be prioritized.

2. Timeline

Another factor that should be considered is the time frame of the business. When does the owner intend to sell the business? When establishing this time frame, a business owner should allow for flexibility. In such a way, he will have more negotiating power.

However, if the time frame is tight, the business sale might not go through smoothly since everything will be done in a rush. Similarly, the stakeholders might not have enough time to make the business reach its full potential.

3. Intentions for the Business

Does the firm owner want to see his business continue its operations or does he prefer that it gets dissolved? Answering this question will help to establish whether the company will end up being liquidated, merged with another, or sold and set up for transition via succession planning.

4. Market Conditions

Both the current supply and demand for the company’s products or services, and the marketplace demand for businesses are also factors to consider. Are there a lot of potential buyers or only a few?

Why a Business Exit Strategy is Important

1. business owners become weary.

Forming a company from the ground up and transforming it into a successful and profitable one is challenging. It calls for a significant investment of time and money. Most of the time, entrepreneurs need to wear many hats before they can earn enough profits to invest in recruitment and training.

Considering the amount of effort that business owners put into these ventures, they are often unwilling to delegate tasks. These individuals invest all their time in running the business operations. They work round-the-clock looking for new clients, marketing their products, and recording the business finances. Since such company owners rarely take some time off to recharge, they can get to the point of fatigue or burnout.

Burnout can occur at any time and for several reasons. When it does happen, the firm owner will not want to spend another three months getting his business ready for sale. Prospective buyers prefer that the company owners have performance metrics, revenue history, and any other paperwork ready. A business exit strategy ensures that company managers have systems in place for recording essential information on a regular basis.

2. Get a better understanding of revenue streams

An exit plan requires that one keeps consistent and up-to-date data regarding the business’ performance. This means that company owners will always have a good understanding of their revenue streams and cash inflows and outflows. They are able to determine the activities that are bringing in the most revenue and how this revenue is being spent.

Having accurate financial data makes for better decision-making. It also helps firm owners to make realistic predictions. They will be able to manage cash flows more efficiently, plan for seasonal fluctuations, and focus their marketing efforts on the projects that matter.

Coming up with an exit strategy helps firm owners decide whether they should go after short, medium, or long-term income projects. If an individual intends to exit the business within the next few months, he can focus his efforts on activities that bring in cash quickly. These would include items such as monthly subscriptions, automatic renewals, and membership models that remain active up to when customers cancel them. Such income-generating projects require minimal effort, yet they keep money flowing into your business.

However, firm owners who want to remain in business for the next couple of years should focus their efforts on long-term growth activities. Developing life-long client relationships, building a reliable pool of employees, and being innovative will go a long way in helping the company grow.

3. Developing effective leadership

Whether a company owner intends to sell his business or pass it onto his next generation, effective leadership can make or break this deal. To ensure that the transition is a success, the firm owners should outline the chain of command that is to be followed upon exiting. This plan should also lay out the basics of company decision-making.

When a longtime manager or leader leaves, some firms end up in chaos with numerous stakeholders fighting for power. The players that are left waste so much time deciding who will take over that they forget the primary goals of the firm. By outlining a clear succession plan, firm owners help to minimize such risks and ensure that the business continues to thrive long after they leave.

4. Smooth operations

An exit plan highlights all the information that the company’s successor would need to run it. This way, the new investors or managers won’t waste their resources collecting basic information regarding employees’ salaries, finances, and partners. If the business exit strategy contains all the necessary information, its successors can hit the ground running as soon as the company leader leaves.

Key Takeaways

Entrepreneurs think of themselves as innovators. Their primary goal is to take ideas and turn them into successful ventures. This is beneficial; it’s what helps most firms survive and thrive. However, placing too much focus on the start of a business takes away focus from its end, which can be detrimental. A good number of entrepreneurs don’t have solid strategies in place for how they will exit the industry or company.

Exit plans are crucial in ensuring that firms transition smoothly to the new management. Having an exit strategy also makes it easy to keep tabs on the company’s finances. If an individual intends to sell his business later, he will have to present the firm’s revenue history and performance metrics to prospective buyers.

Also, a business exit strategy is important as it outlines the chain of command to be followed once a leader exits the company. This way, the new owners won’t spend too much time determining who will take over the managerial positions.

Additional Resources

CFI is the official provider of the global Financial Modeling & Valuation Analyst (FMVA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional CFI resources below will be useful:

• Corporate Structure
• Leadership Traits
• Management Theories
• Succession Planning
• See all valuation resources
• See all equities resources
• Share this article

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ZenBusinessPlans

Home » Business Plans

How to Write an Exit Strategy for your Business Plan

Does your business plan contain a fail-proof exit strategy for you? If NO, here is a detailed guide on how to write an exit strategy for a business plan. Unless you are a joker of a business owner, chances are you came up with a solid business plan at the start of your business. I mean, you conducted your market analysis, and you developed strategies to plan and grow your business.

If you really did all of that, then you are right on track. But one thing you are less likely to have done is planning an exit strategy for your business. And you should do this as soonest as possible if you are yet to. Most people write plans on how to start a business but majority fail to write plans on how to exit their business.

What is an Exit Strategy?

An exit strategy is a method by which entrepreneurs and investors, especially those that have invested large sums of money in startup companies, transfer ownership of their business to a third party, or by which they recoup money invested in the business.

Some forms of exit strategies include, being acquired by another company, the sale of equity, a management-employee buyout et al

Why Prepare an Exit Strategy?

What happens to your business if eventually you die today or get involved in a ghastly accident that incapacitates you? Now I know that nobody prays for bad events or circumstances but one reality of life is that you can never know what’s coming ahead of you. The same holds true in business.

“Prepare for bad times and you will only know good times.” – Robert Kiyosaki

But there are a lot of would-be business owners who love their businesses and would think that having an exit strategy in their business plan is unnecessary. However, there is still a need to have an exit strategy in your business plan. There are two very real and practical reasons why you need to plan an exit:

• Outside investors want to collect their return. Remember that equity investments are not like loans with interest. The investor sees no return until he cashes out, or the company is sold. Even three years is a long time to wait for any pay check.
• Entrepreneurs love the art of the start. Assuming your startup takes off, you will probably find that the fun is gone by the time you reach 50 employees, or a few million in revenue. The job changes from creating a “work of art” to operating a “cookie cutter”.
• If you are seeking for investment from venture capitalist (VC) or angel investors, then an exit strategy is a must have. Even if you’re a small company, it’s a good idea to plan ahead and to actually have an idea of how you will transfer ownership of the business down the line, sell the business, or make a return on your investment.

So just as you had a plan for starting your business, you should also have an exit strategy for transforming your business into cash, should in case you lose interest in the business or run into problems later. Without wasting time, here are the four commonest exit strategies you can choose from and incorporate in your business plan:

6 Types of Exit Strategies You Can Consider and Choose From

1.  initial public offering ( ipo ).

Taking your business public is a very expensive and time consuming exit strategy, as it usually attracts huge accountant and attorney fees. But it can be very rewarding. Offering your business to the public has one simple implication: you are no longer the boss, your stakeholders are. And you will be giving reports about the business to the board of directors and stakeholders.

If you just cannot afford to let go of your business ( by selling it ), then you can relinquish a portion of your shares by taking it public. However, this exit strategy is not recommended if your business doesn’t value up to $10 million. In that case, consider other exit strategies.

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. Examples of restaurants on the stock market include Buffalo Wild Wings and BJ’s.

If this is your main exit strategy from the get go 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 can be able to better prepare you for the process.

The process of getting on an initial public offer can be long and arduous. 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 even with all of these, there is still a risk that the stock market could crash.

While an IPO may be a suitable route for a company like Facebook or Microsoft, you should 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.

2.  Sell your business

Selling a business to another individual or company is the most common exit strategy for any business owner. This option is very easy because it can be conducted between the two parties involved without all the government regulations and oversight that comes with an IPO. As expected, if you decide to sell your business, you will be receiving cash in exchange for it.

But valuing your company is the trickiest part of any sale; as sometimes, knowing the right amount to sell your business for can be very difficult. One way to avoid selling your business for less is to get more than one appraisal of the business ( seek out some business appraisal companies to help you with this ). This way, you will be confident that you are selling for the right price.

If you are concerned about how the business would fare after you have sold it ( though this isn’t binding on you ), you’d want to sell only to a buyer that knows and understands the business and has the experience to carry on the brand’s legacy. And, depending on the closeness between you and the buyer, you can agree on payment by installments.

3.  Acquisitions and mergers

Even though acquisitions and mergers are commonly used interchangeably, there is a slight difference between both terms. An acquisition occurs when one business acquires another business. For example, Company A buys Company B and still continues running under the name of Company A but now has the strength and value of both companies combined.

A merger, on the other hand, occurs when two businesses come together to continue as a single company. A change of name usually happens after a merger. For example, Company A and Company B merge to form a new company called Company A-B. Most of the time, businesses that engage in a merger or acquisition are in the same industry and see multiple benefits in merging together or acquiring one another.

When you decide to go into a merger or acquisition deal, you can negotiate price and terms. You can request that your employees ( if you have any ) be kept on for a certain period or that your management team be retained. You can also negotiate final and annual payouts. If you cannot handle these negotiations yourself, hiring an agency would be your best bet.

4.  Liquidate your assets

This is the least desirable of all exit strategies, but sometimes the most necessary. This strategy can quickly bring in a lump of cash, and it doesn’t involve any negotiations or losing control of your business. You simply close the business and end it. If you like, you can decide to resuscitate it again some other time.

Most of the time, business owners liquidate their assets because of huge debts. In such cases, the proceeds from the sales of assets are used for settling debts, and the remainder ( if there’s any ) would be taken by you or divided among your shareholders. Liquidating your business may usually include selling your office building, office furniture and electronics, company cars, and other assets. Usually, you would sell at market price, and you may not make much profit.

5. Management buyout

If you built a business that you want to continue even after you are gone, you can 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. This form of exit strategy is a good idea if you are someone who really wants to keep his or her legacy alive.

There is still an option of giving the business to your family members, but this has some disadvantages. For instance, the family members who inherit the business may not understand the business, have no interest to do the needful in order to ensure that the business survives or they could even descend into bitter rivalry over who gets what at the detriment of the business.

6. Family succession

If you family members are quite knowledgeable about your business, then they may be the best people to pass it to. If you would like to pass on your business to your children or any other family member, you should make sure that they have the prerequisite skills, are competent and have the success and future of the business at heart. This will make it a lot easier to retire.

Having reviewed the various exit strategies that are available to business owners, here is how you can write a business plan exit strategy.

How to Write a Business Plan Exit Strategy

A. detail your most likely exit strategy.

Firstly, you have to write in details your most likely or preferred exit strategy. Will you like to go public, sell it to another company, sell it to your employees or just liquidate it. Take some time to review the various options that are at your disposal and document your preferred choice.

b. Prove Your Exit Strategy

This step is very important, and it involves justifying the exit strategy you choose. For instance, if your exit strategy is to go public, then show other companies in similar markets or positions that have successfully gone public in the last three to five years. Research and find out the names of those companies, the dates they went public and the returns their investors received.

In the same vein, if the exit strategy you think is right for your business is to sell it off, you should make a list of potential buyers. Discuss not only who they are and their current financial positions (e.g., estimated total revenues if a private company), but the reasons they’d want to purchase a company like yours. You should also show other companies these firms have acquired in the past and at what price points.

Finally, as much as possible, show other companies that were similar to yours that were recently acquired. As much as possible, determine the sale price of these companies and the returns their investors might have received upon their acquisitions.

Even if you don’t plan to sell your business in the future, keep in mind that circumstances may force you to do just that. And you will end up badly burned if you end up doing it the wrong way. So, choose the most appropriate exit strategy for your business and structure it carefully. This way, even if you lose your business later, you will lose gladly.

As you can see, writing a business plan is no easy task. But after having read this eBook, you should now understand that it is well worth the effort. Aside that it better prepares you to deal with some of the shortfalls any entrant into a new market will experience, a business plan gives you a leg up on your competition through better research and insights gained from the process.

If you follow each step as outlined in this eBook, you will be able to come up with a business plan that will market your idea to investors / lenders in the best way.

• Go to Chapter 15: How to Present a Business Plan with PowerPoint
• Go Back to Chapter 13: Your Financial Plan and Projections
• Go Back to Introduction and Table of Content

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Writing an Exit Strategy

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Introduction

An exit strategy is a plan to close a business and distribute its assets in a profitable way. It’s important to have an exit strategy in place even when the reason for closing is a positive one, such as retirement or the sale of a business. Writing an exit strategy allows business owners to ensure their business will have a smooth transition and that their assets — both financial and strategic — are passed on in a way that will benefit them most.

Definition of an Exit Strategy

An exit strategy is a set of procedures and processes that will enable the business to have a graceful closure. It focuses on preserving assets and winding up operations. It should also set out a plan for the future, determine how assets are to be handled, and identify timelines for completion of the strategy. An exit strategy plan should take into account all legal and financial requirements.

Reason for Writing an Exit Strategy

Many business owners set up an exit strategy as a backbone for their business. An exit strategy plan accounts for the future of the business and serves as a framework for decisions such as what services to offer, how to manage finances, and how to maximize revenues. It also serves as a plan of action in the event of unforeseen circumstances such as a downturn in the market or a major change in the business landscape. An exit strategy should provide the foundation to ensure a successful transition.

• It can help mitigate risk by creating a plan to address unexpected changes.
• It can provide clarity and security for a business.
• It can help a business owner capitalize on opportunities to maximize the profitability of their business.
• It can provide peace of mind that the business will be transitioned smoothly.

The Process of Writing an Exit Strategy

Writing an exit strategy requires careful planning and consideration. The process should involve researching the market, setting a timeline, determining your goals, and formulizing a financial plan.

Research the Market

The market should be studied in order to get a better understanding of the field and area it operates in. Knowing the potential buyers, industry trends, and the overall landscape will help create a suitable exit strategy.

Establish a Timeline

Decide on a timeline for the implementation of the exit strategy. It may take months or even years to implement, depending on the size and scope of the business. Mapping out a timeline will help to keep the process on track.

Determine Your Goals

Setting specific goals for the exit strategy will help keep the process focused and organized. Consider the financial goals, the timeline to meet them, and how the strategy will align with the overall vision of the business.

Create a Financial Plan

Craft a financial plan for the exit strategy. Think about the financial risks and determine how to manage them. Consider the costs involved and what investments may be necessary to ensure success. A financial plan will help to maximize the return from the exit strategy.

3. Considerations When Writing an Exit Strategy

Writing an exit strategy for your business is an important task that provides business owners with a plan for exiting their company. Crafting a successful strategy requires taking into account numerous aspects, including raising capital, calculating market value, and investigating potential buyers.

a. Raise capital

Raising capital is essential when developing an exit strategy, as it will provide the owner with the necessary funds needed to exit the business. Entrepreneurs may choose to take out a loan, accept a private investor, or receive capital from a venture capital fund.

b. Calculate market value

Calculating market value of the business helps owners to determine the estimated worth of their company for potential buyers. Carefully assessing the current value of the business allows owners to set the sale price that buyers are willing to pay in order to purchase the business.

c. Investigate potential buyers

Investigating potential buyers is important in order to locate qualified buyers who are willing to purchase the business. Business owners need to carefully research and vet potential buyers to ensure they have the necessary funds and the right connections to purchase the company at the sale price.

Consider Legal Advice

When it comes to exiting a business, there is often a lot of legal considerations such as formalizing the process, identifying tax opportunities, and drafting contracts. Having professional legal advice is key in order to ensure that all legal requirements are met and that you are making decisions that are in your best interests. Here are some key steps to consider when seeking legal advice.

Formalize the Process

Having a plan that is clear and formalized is important when moving forward with an exit strategy. Depending on the type of business, there may be different regulatory and legal requirements that need to be met as part of the process. Having a legal professional familiar with these regulations can be invaluable to help ensure that everything is done correctly.

Identify Tax Opportunities

Tax implications can be a major factor when deciding to exit a business. Not only can working with a legal professional help to make sure that you are in compliance with all tax regulations, but it is also important to be aware of any tax credits, deductions, or other opportunities which can help to minimize your taxes. This can be a complex area, so being able to draw upon the expertise of a legal professional is key.

Draft Contracts

When it comes to exiting a business, it is likely that contracts will need to be drafted. In order to have legally binding agreements, it is important to have the terms drafted in an appropriate manner that is compliant with any relevant regulations. A legal professional can help to ensure that contracts are drafted correctly and that the appropriate parties are involved.

Market and Market the Exit Strategy

When creating an exit strategy for a company, the first step is to assess the competitive landscape. Understanding how the brand fits in with others and how the competition is affecting the space is important in developing a successful exit strategy. Once the competitive landscape has been assessed, the company should make efforts to connect with industry leaders and build relationships with those already established in the market.

Assess Competitive Landscape

When building an exit strategy, it’s important to understand the competitive landscape. Companies should gain insights into the competitive advantages and competitive threats they face. Having a clear picture of the competitive environment allows the company to develop a competitive strategy, including initiatives to counter the competitive threat and capitalize on competitive advantages.

Connect with Industry Leaders

To ensure that a company’s exit strategy is successful, it’s necessary to build relationships with industry leaders. This can be accomplished by networking at conferences, attending trade shows, participating in business associations and tapping into professional connections. It's also important to research the different professionals that lead the industry and contact them. By connecting with key industry players, the company can gain insights into the opportunities and risks associated with their exit strategy.

Build Relationships

Once the company has identified industry leaders, the next step is to build relationships with them. This can be done by offering valuable advice and a fresh perspective, as well as by engaging in conversations on social media. Companies should also look for ways to collaborate with industry leaders and create cross-promotional opportunities. Building strong relationships will help ensure the success of the exit strategy, as these relationships can open the door to potential funding and valuable insights.

Monitor Ongoing Updates

After your exit strategy has been implemented, it is necessary to monitor any changes that may have an impact on the plan. Collecting information on updates that occurred during the transition is key to understanding the effectiveness of the plan. These updates include changes in regulatory requirements, new technologies, and changing customer preferences, among others.

Assess Risk and Impact

It is critical to assess any potential risks resulting from the updates that could negatively affect the exit strategy. Companies should consider threats from legal, environmental, financial, and operational perspectives. Among others, the assessment should include developing strategies to mitigate risk, determining the economic impact of the changes, and understanding the psychology of stakeholders.

Reanalyze Exit Strategy

Once the risks associated with updates have been identified and their impact assessed, companies should consider how to adapt the exit strategy to align with the changes. This includes a comprehensive examination of the current plan and taking into account the updates and any new business objectives.

Make Necessary Changes

After the reanalysis of the exit strategy, companies should make changes when necessary to address any potential risks. Companies should be prepared to modify or adjust the strategy over time, depending on the complexity of the exit and any new updates. Businesses should also be open to feedback from any stakeholders involved in the plan.

Writing an exit strategy for your business is an important part of effective management. Taking time to thoroughly analyze the tools and processes of your business is essential for making sure your exit strategy is successful.

In this post, we discussed the importance of an exit strategy and the steps necessary for creating an effective one. We looked at the need for an early understanding of options through research and strategic planning. We delved into the components of a successful plan and looked at ways to create an exit strategy that meets your goals.

Summarize Key Points

• An exit strategy is an important part of effective management.
• Researching the options is essential, as it gives you a better understanding of what is available and which option is right for you.
• Creating a strategic plan is also essential, as it ensures that you are making decisions with a clear direction in mind.
• Components of a successful plan include market analysis, financial planning, and legal considerations.
• Implementing an exit strategy can be difficult but is worth the effort.

Highlight Importance of Exit Strategy

An effective exit strategy is essential for a successful business. It helps you align your short-term and long-term goals, ensures that you are planning for the future, and provides peace of mind in knowing that you have a plan for exiting your business when the time is right.

Stress Need for Thorough Analysis

Writing an exit strategy can be a daunting task, but it is essential to make sure that your business is prepared for the future. Creating a thorough plan requires research, strategic thinking, and the right resources to make sure that you are making the right choices for your business. Taking the time to analyze the process and plan accordingly is the best way to ensure that your exit strategy is successful.

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What is Exit Business Planning? How To Develop an Exit Plan For a Small Business

Wisebusinessplans is one of the best companies that write business plans .

Business Exit Planning is part of every successful business plan. Exit planning guides you on how you can leave your business. You do not want to bear the loss when you close your business.

What Is Business Exit Planning?

Importance of having an exit plan, 7 smart business exit strategies, merger & acquisition (m&a), initial public offering (ipo), management buyout, selling to a partner or investor, liquidation, how to develop an exit plan, what is the best exit plan.

It answers the question of what you will do after ending your business operations. 

It helps you make a graceful exit without risking your investment. Strong exit planning will help you to convince investors that their investment is in safe hands.  

No matter if you are running a successful business or handling failure, an exit plan will be part of your business strategy. 

Want to learn more about exit planning?  keep reading.

This guide will clarify everything from smart exit strategies to how to develop an exit plan.

Make Your Business Exit Smooth and Rewarding

Use WiseBusinessPlans Business Exit Strategy Cosultation and get the most out of exiting business. 

” An exit planning allows an entrepreneur to sell his business to maximize the value of Company “

An exit strategy differs from business to business. It depends on the size of the company or what type of involvement you want in your business.

If an entrepreneur wants to sell a 100% share of his company, an exit planning strategy should remove all his involvement from the company.

For example

If you have a company that is not making a profit; It is suggested to make an exit plan to get rid of the business. The exit plan for the non-profitable company should try to minimize loss.

If your company is generating good profit, an exit plan should maximize the profit.

A good exit plan gives maximum value to the entrepreneur when he sells his company.

Are you still unclear about why you should have an exit plan? Go through these points for having a clear idea about the importance of exit planning.

• An exit plan allows investors to be on the safe side when unexpected circumstances seize them. 
• Changes in the market and economy can be a reason for selling a company. However, selling your company needs preparation. A strong exit plan will make you prepared for that time. 
• You might not have started your company for selling, but if you receive an attractive offer from a potential buyer, this could be a topic of discussion. You are making a good profit and know the value of your company. At that point, an exit plan helps you decide whether you should sell your company or not.  
• Illness and bad health can push you to get out of the business. Having an exit plan will prepare you for that time.
• An exit plan will urge you to focus on your targeted goal. It helps you end your business operations at the right time. You can work on your exit plan along with the business plan. An exit plan assists you to make a graceful exit from your business. Exit planning helps you to understand the value of your assets. 
• You do not want to be on the losing side when you shut down a company. It is recommended to make your exit planning clear at the beginning of the business.

There is no right or wrong exit plan. Whenever you are ready for an exit, choose the strategy that will work for you.

There are many factors that you must take into consideration when choosing a strategy. Such as :

• Time: what is the right time to sell your business?
• Money: How much money do you need to fulfill your financial needs?
• Business involvement: how much business involvement do you need after an exit?

These three factors will help you choose an exit strategy smartly.

Let’s discuss the smart strategies to exit your business.

• Mergers & acquisition
• Initial Public Offering
• Management buyout
• Sell to someone you know
• A merger means when two companies consolidate and become one. Ex: Exxon & Mobil
• The acquisition means when a company purchases another company. Ex: Google & Android

Merger & Acquisition is referred to as M&A. The process of merger & Acquisition is different.

In a merger, two companies join hands for better benefits and rapid growth. All their resources, brand name, tax, liabilities everything become one. In a merger, money is not exchanged from both sides.

The acquisition is different from merging. In acquisition, a company purchases another company. Ownership will be changed. Everything will be transferred to the new owner. In acquisition, money is exchanged. A company can purchase a portion of the share or the whole company.

M&A benefits both companies. You can merge or sell your company to another big company.

Larger companies often hunt small companies to be purchased. They want to eliminate the competition and increase their geographic footprint.

For example:

In the digital world, Google and Android merged for better benefits. Google was a large IT company. However, Android was a start-up and struggling to make a name in the market. 

Android was taken by Google for $50 million. After the acquisition, Android made a noticeable share in the mobile phone market.

• More room for business price negotiation
• You can set your own terms
• If there is significant demand for your business, you can increase the price and get a better deal
• A time-consuming process with a lot of corporate politics involved
• Costly with hefty attorney fees
• You may not get merged or acquired in the first run

Merger And Acquisition M&A Business Plan

When it comes to M&A transactions, leaving the details to Wisebusinessplans can save you time, money, and effort. To reach your business goals, our consultants can write a business plan for you. A well-prepared M&A business plan will allow you to get back to work quickly.  

IPO is an exit strategy that allows companies, and private Investors in companies sell their Share to public Ex Alibaba IPO raised $21.8 billion on Sep 2014

Private investors hold equity in companies. They can sell their private equity (PE) to the public when they need cash. 

Companies also use this strategy to raise funds. Take Alibaba for example. Since its IPO in 2014, they have significantly increased its products and services portfolio and its revenue has increased

• IPO can be very lucrative in the right settings
• Intense, ongoing scrutiny from shareholders and regulators Strict reporting for the company performance is necessary

Need sample business plan to get an idea?

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A management buyout is referred to as MBO. In this strategy, the current management of the company can purchase a portion of the shares or the whole company if they can pool the resources. 

This exit method benefits both seller and buyer. MBO selling process can be done quickly as the management team is already familiar with the business and its potential. 

The current management will assume more senior roles in the new company. 

As they are already running the company, an MBO will increase their loyalty towards the company and you may also be able to retain a position like an advisor, etc.

• You will have the peace of mind that your business is in good hands
• MBO is generally a smooth process
• You can still keep working in the company as an advisor
• Management may not be interested in buying the company or they may not have the resources Big management changes will produce short-term problems

You can sell your stakes in the company to your business partner or an investor. However, this applies to you when you are not a sole proprietor.

The partner or investor buying your share is called ‘friendly buyer’. Mostly, this person is from your circle of friends or family or someone you trust.

• Smooth transition, no visible changes in company operations or revenues
• Not as lucrative as other exit business strategies

Liquidation means closing your business by selling all your assets to get cash.

Business Liquidation is often considered a quick strategy to get out of business. If your business is going well, you can sell off your assets at a good price and can maintain cash flow.

Liquidation is a clear-cut strategy to end your business journey. However, if you have creditors, the money will go to pay off the debt first before you pocket anything.

Before liquidation, make sure to do these things for a smooth transition.

• Make payments to the employees.
• Clear your taxes, and keep a record of them in case you need them in the future.
• End all your business expenses such as registrations and licenses.
• File the business abolition document.
• A liquidation ends your business in toto.
• Liquidation is a faster way to exit your business.
• You may not get the right price for your business
• Creates bad rapport for you in the business community overall

Acquihire is when someone buys your company with the sole purpose to acquire your team. 

An acquihire benefits skilled employees of your company as it provides them with growth opportunities and you can be sure that they will be taken care of.

• You can get a higher price for your business from an interested party
• Company employees get the opportunity for long-term growth
• Not many team buyers in the market
• Costly process

Filing for bankruptcy is your last resort in exiting your business. A bankruptcy is filed when you cannot pay your debts or liabilities and the court sells your business assets and give creditors pennies for a dollar.

Bankruptcy comes with bad consequences for your credit report. It might become hard for you to start a new business after bankruptcy unless you are Donald Trump.

Settles your debts and liabilities

Makes it hard for you to get credit in the future

A good exit plan provides you maximum value when you sell your company. Before starting to develop, you need to ask a few questions to yourself.

• Do you want involvement in your business?
• What are your financial goals?
• Do you have to pay the creditors or investors back?

These three questions will clarify things. Answering these questions will help you find the right exit strategies for your business.

If you do not want any involvement in the business, all shares could be sold. You can liquidate the company, and remove your involvement.

Objectives of your Exit Business Strategy

To get maximum value for a company, you should set your exit business strategy objectives.

These objectives will help you understand your requirements. You want maximum return on investment, and knowing your goals will support you to sell your company for a good profit.

Make Business Finance Report

Prepare your finance report for a better understanding of your company’s account and assets.

A clear finance report will enable you to understand your business performance and value. Having a clear idea of finances will help in negotiations with buyers.

As you are going to sell your business, it is recommended to have clear finances. Pay off the creditors if you have any. Less debt will attract more buyers.

Market situation

The market situation should be taken into consideration while making an exit plan. If the market condition is good, there must be a lot of potential buyers and you can sell your company at a higher rate.

Adopt the Right Strategy and Timeline

There are many strategies to adopt, you need to choose the one that will work for you. Select the time when you are prepared for the transition.

If you do not want to sell a 100% share of the company, it is advised to adopt an IPO strategy. Through this strategy, you can stay connected with your business. IPO helps you to sell a portion of your shares.

Likewise, choose a time when you are prepared to sell your company.

Business Evaluation

Business evaluation is another crucial step. Business evaluation gives you an idea about the value of your business. After making the finance report, you can easily examine your company.

You can not put your business for sale without a proper idea about the value.

Bonus Tip : Know the worth of your small business by using our business evaluation calculator .

Speak with your Investors

Once you are clear on what you want to do with your business, take your investors and stakeholders in confidence.

Tell them how the investors’ share will be repaid. You’ll need your business finance report to convince investors of your claims.

Choose new Leadership

Starting with choosing new leadership for your business as you continue with the exit business plan.

You can transfer responsibilities to new leadership smoothly if your business operations are already documented.

Tell your Employees

Your employees have an emotional attachment to the company. Tell them about your business exit plan. Face them with empathy and be transparent in your answers. This will make them feel valued and increase their loyalty to the business.

Inform your Customers

Announce the changes in your business to your customers. Introduce them to the new business owners to keep their confidence.

In case of liquidation or bankruptcy, educate your customers about alternative businesses that offer the same or similar products or services as you did.

The best exit plan is the one that gives you maximum profit. A plan that is according to your expectations and goal is best for your business.

The best strategy is the one that keeps on updating as per your need.

In the beginning, you may want to merge your company with another corporation for better results. Later on, one of your close relatives wants to buy your company. His offer might be tempting. You change your mind and are ready to sell.

The best plan is always an updated plan. You can make their exit plans themselves according to their goals. Consult a professional if you feel stuck in the process.

Want to write a business plan?

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Exit business planning refers to the strategic process of developing a plan for the eventual transition or exit from a small business. It involves setting goals, evaluating options, and implementing strategies to maximize the value and ensure a smooth transition when the business owner decides to exit.

Developing an exit plan is important because it allows business owners to proactively prepare for their eventual exit, whether it’s through selling the business, passing it on to a successor, or closing it down. It helps maximize the business’s value, minimize potential risks, and ensure a smooth transition for all stakeholders involved.

An exit plan typically includes determining the desired exit timeline, identifying potential buyers or successors, valuing the business, addressing legal and financial considerations, and creating a comprehensive succession or transition strategy.

Developing an exit plan involves assessing your business’s current state, setting clear goals for your exit, seeking professional guidance from accountants or business consultants, considering tax implications, and creating a detailed plan outlining the steps and timeline for your exit.

It is advisable to start developing an exit plan as early as possible, ideally when starting or acquiring a business. However, even if you haven’t done so yet, it’s never too late to start. The earlier you begin the planning process, the more time you have to implement strategies that can increase the value and ensure a successful exit when the time comes.

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7 steps for writing an exit strategy for your business

Writing an exit strategy to sell the company can seem daunting. But if you break down the process into a few steps and take each step one at a time, you’ll discover just how simple exiting a business can be.

Let’s discuss what an exit strategy is, why you need one, and what the steps are for writing a successful exit strategy for your business.

What is an exit strategy?

Exit strategies, also known as exit plans, are created by investors, and they detail how they plan to divest an investment.

Frequently, the investor is the business owner who is deciding how they eventually want to “exit” the company they built. These plans are typically long-term in nature and should be built years before the business owner wants to sell (or leave his or her business).

Why do people need an exit strategy?

An exit strategy helps the investor or business owner focus on the end goal.

The reason behind the exit strategy may be a short-term “push” or a long-term “pull.” The exit plan will vary depending on which reason it is.

Short-term/”push” factors include:

• Business owner or a family member has a health issue or other crisis
• Owner fatigue and stress
• No longer enjoying your work; boredom
• Business is in distress

Longer-term “pull” factors include:

• Wanting to start a new business
• Spending more time with friends and family
• Traveling, getting healthy, retiring

Having a plan ahead of time can increase the array of options one has at their disposal, even in the event of a short-term “push” event.

If you don’t have a plan put in place and a push event occurs, you may not have adequate time to execute. This is especially true if you don’t have a plan that includes the following:

• strategic buyers
• merge partners
• a family member passes down
• management buy-out agreements

If this ends up happening, you may be forced to sell your company at a lower price than you otherwise would have realized.

Why is an exit plan important?

An exit strategy formulated early on will guide decisions that the business owner or investor will make.

If the goal is to build the company revenues and profits to eventually fund the business owner’s retirement, certain decisions will be made. These decisions will likely be different from an exit strategy that involves passing down the business to a family member. This is because the business owner won’t be anticipating as large of a “cash out” from a family member as opposed to a strategic buyer.

Exit strategies are also helpful in the event of a business downturn (either due to economic or market conditions or profit losses).

As another example of why an exit plan is important, a business owner or family member could face a health crisis. This could mean they’re unable to continue contributing to the business and may end up needing cash from the business to cover related expenses.

In situations like this one, a “backup” exit strategy would be helpful and relieve a great deal of stress.

What are the steps for writing an exit strategy?

• Prepare an accurate account of your finances.

90% of business owner’s wealth is tied up in their businesses. Ultimately, this means that business owners need to realize as much value as possible from their business exit. This will allow them to continue to fund their lifestyle even after they divest their business (especially if they plan to retire and no longer draw a salary).

Keep Reading:   How much can I sell my business for?

• Evaluate your exit strategy options.

Below are a few reasons owners and investors may want to exit a business (along with the most frequent strategies used):

• Retiring: Sell or transfer to family
• Doing Something Else: Bring in a CEO/COO to operate the business, sell or liquidate
• Health Reasons: Liquidate, sell, transfer to family or management buy-out
• Determine the value of your company by working with professional business valuation experts.

Is your company optimized in terms of valuation or could improving a few key areas of operations, finance, etc. over another 24 months improve the value you could receive? If so, you may want to consider committing to these improvements rather than exiting right away (if that is an option).

Related Content:   What is a fractional CFO?

• Decide what role, if any, you want to play in the business after your official exit.

Are you comfortable financing any of the purchases for the buyer? Do you want to continue working for the organization in a lesser role? What about as a shareholder while continuing to run the organization until an acquirer wants to sell? Maybe you just want to consult with them for a short amount of time? These are things you’ll need to decide as you write an exit strategy.

• Decide your exit strategy depending on your cash needs and desire for continued involvement in the business.

Cash needs will steer you to selling to a strategic buyer or liquidating assets. If you are willing to continue in the business, options such as re-capitalization, management buy-out, transferring to family, and staying on as Chairman CEO/COO in the event of a private equity investment come into play.

Related Content: The 5 most  common fractional CFO Services

• Advise investors and key stakeholders, as well as family members and employees of your exit strategy.
• Choose succession leadership and allow plenty of time for training.

Need help writing an exit strategy?

Every business needs a well-formulated exit strategy. This plan will help establish the smoothest transition possible in the event of a crisis or sudden business decision.

On top of this, the exit strategy can guide both business and personal decisions for the business – all while maintaining a steadfast focus on the end goal.

If you need help moving through a business exit strategy, a  business exit professional  can help:

• Create the right strategy
• Determine the current value of the organization
• Optimize business processes, finances, and people to ensure you meet your goals

If you’re ready to get started with your exit plan, give us a call or  reach out to us online . We’d love to talk.

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How do I develop an exit strategy for my business?

So, what’s an exit strategy? Simply put, it’s a plan that outlines when you plan to leave, what you’ll do with your business when you go, and how you’ll transition the business to the next stage. In developing an exit strategy, you’ll need to understand what you want to accomplish as you exit and then explore the advantages and disadvantages of various options. It’s also important to know the value of your small business and associated  tax implications . In this guide, we provide a summary of the initial steps you can take to develop your exit strategy. 

Determine if you should sell your business

Any decision about your exit plan—including its timing—comes down to your unique situation and goals. There are three important questions to ask that can help you assess whether now is the right time to plan an exit. 

How much is my business worth today? 

Understanding the current market value of your business impacts any decision you make regarding your future, and getting a proper estimate is a complicated task. The timing of your next steps may change depending on your expected price and the fact that selling your business can sometimes take 9 to 12 months. Working with a professional can help ensure that you don’t overestimate the value of your business or underestimate its potential for future growth. 

Is my business in demand? 

Consider the demand for businesses in your sector and privately-held businesses overall. After a few years of increased mergers and acquisition (M&A) activity  that created opportunities for both buyers and sellers, the market saw a cooling off period followed by a possible return to long-term averages. Market conditions can change quickly, so it’s important to understand how the cyclical nature of the M&A landscape could affect your sale prospects. 

What are my personal goals? 

Our personal or financial goals help determine when to exit and your best options. For example, the decision to move on to the next chapter of your life as soon as possible can require more funds upfront, so it’s important to understand the timelines associated with various exit strategy options. 

Consider common exit strategies 

Transition your business to a family member  

Consider transferring ownership or control of your business to a family member if you want it to continue in its present form but would like some relief from the mantle of responsibility. You may be able to transition your family-owned business, with prudent succession planning, to the next generation without the adverse tax consequences, under the intergenerational transfer rules . 

To help facilitate a smooth transition, it’s important to develop a formal and succession plan. Ideally, the plan will identify your successor, outline your training plans to enable them to manage both short- and long-term decisions and responsibilities and schedule exactly how the transition will be deployed. It’s important to note that this may not be an option if you’re looking for a more rapid exit or payout. 

Sell your business to your existing partners or employees 

A management buyout or sale to employees allows individuals familiar with the culture and processes to acquire the company and take control of ownership. This provides continuity in your business and can mean a smoother transition that requires less time to transfer your day-to-day responsibilities. However, selling to your employees can result in a lower sale price and may take longer to fully realize on the funds from the sale, although ultimately the sale price will be dependent on what is happening in the market. 

Sell your business on the open market

If your business is profitable and demand is strong, it could draw more potential buyers and receive more attractive offers. This option requires  grooming the business for sale , including making sure that your financial records and asset inventories are current and your processes are adequately documented. 

Understand the tax implications of selling your business 

The tax implications of selling your business will depend on how you exit.  There are exemptions and strategies that can help you make the transfer as tax efficient as possible, though it’s crucial to plan these in advance of the transaction. 

If you’re opting to sell your business, you’ll want to consider the after-tax return on the proceeds of the transaction. Depending on the nature of sale—whether you’re selling only parts of the enterprise, the entire business or if you’re looking to only sell an equity interest in the business—there may be capital gains exemptions and tax deferrals available to you. If you’re thinking about including contingent or earn-out components to the sale of your business, there may be other tax implications to consider. 

There are also tax considerations associated with liquidating your business assets. The proceeds of an asset sale will be used to repay outstanding debts owed to creditors, and the remaining proceeds, depending on the ownership structure of your business, may be distributed to you as taxable dividends. 

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The information contained herein is intended for general informational purposes only and does not constitute as advice or opinions to be relied upon in relation to any particular circumstance. For more information about this topic, please contact your Grant Thornton advisor. If you do not have an advisor, please contact us. We are happy to help.

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30 August 2022

Exit strategy 101: How to plan a successful business exit

A business exit provides a unique opportunity to realise the capital value that you have created in your business. Unfortunately, many business owners 'leave money on the table' when they exit their business, mainly due to a lack of planning. Regardless of how far away you think your exit might be, there are things that you can (and should) be doing now to make the most of this opportunity.  

1. Define your objectives

The very first step in planning an exit involves thinking about what your ideal exit might look like. For example, in an ideal world:

• When would you like to exit?
• Would you like to continue owning any part of the business after the exit event, or is your preference to exit completely?
• Would you like to continue working for the business after the exit, whether as an employee, consultant or otherwise? Would you like to be a director or advisor?
• Are there particular types of people you would like (or not like) to own the business after you exit?
• What capital return would you like to aim for?
• Do you have any concerns about what might happen to the business, or its people, after you have gone?

Being clear on your goals will not only help you create more effective plans for your exit, it will also keep you motivated throughout the process.

2. Identify your ideal type(s) of buyer

There will be a range of people who could potentially be interested in buying your business, including:

• your current management team,
• a competitor,
• a supplier,
• a similar type of business based elsewhere (overseas, in another state),
• a related business in your own geography, looking to increase their range of services, or
• a private equity firm.

There may be others.

Your ideal type of buyer is the one who is most likely to be capable of delivering your objectives.  Although you don't need to limit yourself to a single category of buyer, the more targeted you are, the more focused you can be with the further steps below.

3. Find out what your ideal type of buyer is looking for

Although all buyers will be looking for similar things (for example, evidence of sustainable performance), some types of buyer will be willing to pay a premium for particular things.  Examples could include:

• a foothold in a particular market,
• specific expertise or knowhow,
• relationships with certain types of client (or even specific clients),
• possession of hard-to-acquire assets,
• industry reputation or brand recognition,
• industry leading systems and processes.

Similarly, some types of buyer may not be prepared to pay as much if your business is lacking in areas that are important to them. The same examples above are also relevant here, as well as:

• a strong, stable management team who can operate independently of the owners,
• a loyal and/or diversified customer base,
• strong cashflow,
• a sensible corporate structure, 
• low exposure to trading and/or contractual risks,
• no hidden skeletons (eg exposure to tax risk, litigation risk etc).

Ensuring that your business has all the features your ideal buyer is looking for, and that it has none of the features they are trying to avoid, will be critical to ensuring you exit for maximum value.

The process of finding out what a buyer might want should not be a speculative exercise. You can gain valuable insights by speaking with people - such as people who might fall within a category of an ideal buyer, or others who regularly deal with them. Corporate advisors are an example. 

4. Identify what you need to do to make your business as attractive as possible to your ideal buyer

Having defined what your business should look like to attract the ideal buyer, you can then start identifying:

• the changes that need to be made, and
• what data you will be able to collect, prior to going to market, to prove the value of what you have created.

Making meaningful changes and collecting the relevant data won't happen in a matter of months, and that's why it's so important to start the planning early.

For example, your ideal client might be willing to pay a premium if you can demonstrate (say) a strong track record in delivering a particular type of product or service. Providing a handful of case studies is one thing, but providing at least 2-3 years of specific experience, backed by financial data, repeat business, consistently high customer satisfaction surveys,  and other relevant metrics will paint a completely different picture and potentially elevate the value of your business to a different level.

5. Have the right advisors on board early

You will already know that you are going to need the support of a variety of professionals to exit your business. The types of people most commonly involved are:

• Your accountant . Even though you might engage the services of other, more specialist advisors to assist in the transaction, your accountant will play a vital role throughout. 
• A specialist tax advisor . Your accountant might have specialist tax knowledge, but they might not. (Ask if you're not sure.) Some structures will be more tax effective than others, and there may be things you can do (or should be aiming for) in order to achieve the best after-tax outcome on your exit.
• A corporate advisor . Corporate advisors specialise in the process of buying and selling businesses. They possess a skillset that is quite different to accountants and tax advisors. From helping you get your business 'sale ready', to sourcing potential buyers and negotiating a deal, a good corporate advisor is often an absolutely vital member of the team.
• A commercial/M&A lawyer . Your regular lawyer or law firm (if you have one) might have the capabilities required to plan for and implement an exit, but they might not. A good commercial lawyer will not only be able to help you with the transaction itself, but they will also be able to help you identify improvements you can make in the period prior to the sale, alongside your other advisors.

The sooner you assemble your advisory team, the better. Because they will have been through the process many times previously they will be able to provide insights, help you set realistic expectations, make connections with other advisors (or potential buyers), and generally help you through the process.  Try to find advisors with experience in exit transactions that are likely to be similar to yours, and who understand the market. 

6.Incentivise and align your team

If you are serious about maximising your potential return on an exit, you are going to need the support of your team. Consider whether your current remuneration practices are driving behaviours that are likely to enhance the capital value of your business.

If you don't already have one in place, perhaps consider an employee share scheme (whether a share scheme, option scheme or phantom scheme). Equity incentives can be an important tool, not just for team retention, but also to ensure the team is aligned in achieving your ultimate business objectives.

7. Execute your strategy

Once you have your strategies in place, it's time to execute them.

As should now be apparent from the discussion above, a successful exit strategy is a lot more than just announcing that you are for sale. 

For most businesses, there are always a number of improvements that can (and should) be made if the intention is to extract the most value on your exit. This is why a good exit strategy is executed over years (not months), and why you should really start working on your exit strategy now, regardless of when you think your exit might be.

About the Author

Greg Henry | Principal

Greg has supported clients through $3.5b+ in transactions in the construction and technology sectors. He assists medium sized businesses grow and realise capital value through strategic legal initiatives and business-changing transactions.

[email protected] | (02) 9229 2904

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Turtons is a commercial law firm in Sydney with specialist expertise in the construction and technology sectors.

We specialise in helping businesses:

• improve their everyday contracting processes,
• negotiate large commercial contracts and other deals that fall outside of "business as usual", and
• undertake strategic initiatives, such as raising capital, buying businesses, implementing employee share schemes, designing and implementing exit strategies and selling businesses.

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• Warranties in a share sale agreement: 10 tips for sellers
• What does a share sale agreement cover?
• Why your exit strategy needs to include an employee share scheme
• 6 reasons to work on your business exit strategy now
• When do employees pay tax on employee share scheme interests? 01-2023
• Eligibility criteria for the ESS start-up concession 01-2023
• Warranties in a share sale agreement: 10 tips for sellers 04-2017
• Why your exit strategy needs to include an employee share scheme 11-2022
• 6 reasons to work on your business exit strategy now 10-2022
• 5 reasons to consider an Employee Share Scheme 04-2017
• Employee Share Schemes Tax Basics 07-2021
• What is the vesting period in an ESOP? 07-2021
• How do employee option schemes work? 07-2021
• How do employee share schemes work? 06-2017
• What does a shareholders agreement cover? 06-2017
• 4 key ingredients for a successful employee share scheme 07-2021

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

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

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

What is a company exit strategy?

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

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

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

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

• How will you protect business investments and limit losses?

Small business exit strategies

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

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

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

There are five main types of mergers:

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

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

2. Acquisition

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

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

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

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

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

3. Sell to someone you know

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

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

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

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

4. Initial public offering

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

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

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

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

5. Liquidation

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

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

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

How to write an exit strategy business plan

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

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

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

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

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

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

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

Need help staying organized in your small business? Patriot’s online accounting software makes tracking your expenses and income a snap. Keep solid records to have an accurate picture of your business’s financial health. Try it for free today!

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

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Introducing Apple Intelligence, the personal intelligence system that puts powerful generative models at the core of iPhone, iPad, and Mac

New Capabilities for Understanding and Creating Language

Image Playground Makes Communication and Self‑Expression Even More Fun

Genmoji Creation to Fit Any Moment

New Features in Photos Give Users More Control

Siri Enters a New Era

A New Standard for Privacy in AI

ChatGPT Gets Integrated Across Apple Platforms

Text of this article

June 10, 2024

PRESS RELEASE

Setting a new standard for privacy in AI, Apple Intelligence understands personal context to deliver intelligence that is helpful and relevant

CUPERTINO, CALIFORNIA Apple today introduced Apple Intelligence , the personal intelligence system for iPhone, iPad, and Mac that combines the power of generative models with personal context to deliver intelligence that’s incredibly useful and relevant. Apple Intelligence is deeply integrated into iOS 18, iPadOS 18, and macOS Sequoia. It harnesses the power of Apple silicon to understand and create language and images, take action across apps, and draw from personal context to simplify and accelerate everyday tasks. With Private Cloud Compute, Apple sets a new standard for privacy in AI, with the ability to flex and scale computational capacity between on-device processing and larger, server-based models that run on dedicated Apple silicon servers.

“We’re thrilled to introduce a new chapter in Apple innovation. Apple Intelligence will transform what users can do with our products — and what our products can do for our users,” said Tim Cook, Apple’s CEO. “Our unique approach combines generative AI with a user’s personal context to deliver truly helpful intelligence. And it can access that information in a completely private and secure way to help users do the things that matter most to them. This is AI as only Apple can deliver it, and we can’t wait for users to experience what it can do.”

Apple Intelligence unlocks new ways for users to enhance their writing and communicate more effectively. With brand-new systemwide Writing Tools built into iOS 18, iPadOS 18, and macOS Sequoia, users can rewrite, proofread, and summarize text nearly everywhere they write, including Mail, Notes, Pages, and third-party apps.

Whether tidying up class notes, ensuring a blog post reads just right, or making sure an email is perfectly crafted, Writing Tools help users feel more confident in their writing. With Rewrite, Apple Intelligence allows users to choose from different versions of what they have written, adjusting the tone to suit the audience and task at hand. From finessing a cover letter, to adding humor and creativity to a party invitation, Rewrite helps deliver the right words to meet the occasion. Proofread checks grammar, word choice, and sentence structure while also suggesting edits — along with explanations of the edits — that users can review or quickly accept. With Summarize, users can select text and have it recapped in the form of a digestible paragraph, bulleted key points, a table, or a list.

In Mail, staying on top of emails has never been easier. With Priority Messages, a new section at the top of the inbox shows the most urgent emails, like a same-day dinner invitation or boarding pass. Across a user’s inbox, instead of previewing the first few lines of each email, they can see summaries without needing to open a message. For long threads, users can view pertinent details with just a tap. Smart Reply provides suggestions for a quick response, and will identify questions in an email to ensure everything is answered.

Deep understanding of language also extends to Notifications. Priority Notifications appear at the top of the stack to surface what’s most important, and summaries help users scan long or stacked notifications to show key details right on the Lock Screen, such as when a group chat is particularly active. And to help users stay present in what they’re doing, Reduce Interruptions is a new Focus that surfaces only the notifications that might need immediate attention, like a text about an early pickup from daycare.

In the Notes and Phone apps, users can now record, transcribe, and summarize audio. When a recording is initiated while on a call, participants are automatically notified, and once the call ends, Apple Intelligence generates a summary to help recall key points.

Apple Intelligence powers exciting image creation capabilities to help users communicate and express themselves in new ways. With Image Playground, users can create fun images in seconds, choosing from three styles: Animation, Illustration, or Sketch. Image Playground is easy to use and built right into apps including Messages. It’s also available in a dedicated app, perfect for experimenting with different concepts and styles. All images are created on device, giving users the freedom to experiment with as many images as they want.

With Image Playground, users can choose from a range of concepts from categories like themes, costumes, accessories, and places; type a description to define an image; choose someone from their personal photo library to include in their image; and pick their favorite style.

With the Image Playground experience in Messages, users can quickly create fun images for their friends, and even see personalized suggested concepts related to their conversations. For example, if a user is messaging a group about going hiking, they’ll see suggested concepts related to their friends, their destination, and their activity, making image creation even faster and more relevant.

In Notes, users can access Image Playground through the new Image Wand in the Apple Pencil tool palette, making notes more visually engaging. Rough sketches can be turned into delightful images, and users can even select empty space to create an image using context from the surrounding area. Image Playground is also available in apps like Keynote, Freeform, and Pages, as well as in third-party apps that adopt the new Image Playground API.

Taking emoji to an entirely new level, users can create an original Genmoji to express themselves. By simply typing a description, their Genmoji appears, along with additional options. Users can even create Genmoji of friends and family based on their photos. Just like emoji, Genmoji can be added inline to messages, or shared as a sticker or reaction in a Tapback.

Searching for photos and videos becomes even more convenient with Apple Intelligence. Natural language can be used to search for specific photos, such as “Maya skateboarding in a tie-dye shirt,” or “Katie with stickers on her face.” Search in videos also becomes more powerful with the ability to find specific moments in clips so users can go right to the relevant segment. Additionally, the new Clean Up tool can identify and remove distracting objects in the background of a photo — without accidentally altering the subject.

With Memories, users can create the story they want to see by simply typing a description. Using language and image understanding, Apple Intelligence will pick out the best photos and videos based on the description, craft a storyline with chapters based on themes identified from the photos, and arrange them into a movie with its own narrative arc. Users will even get song suggestions to match their memory from Apple Music. As with all Apple Intelligence features, user photos and videos are kept private on device and are not shared with Apple or anyone else.

Powered by Apple Intelligence, Siri becomes more deeply integrated into the system experience. With richer language-understanding capabilities, Siri is more natural, more contextually relevant, and more personal, with the ability to simplify and accelerate everyday tasks. It can follow along if users stumble over words and maintain context from one request to the next. Additionally, users can type to Siri, and switch between text and voice to communicate with Siri in whatever way feels right for the moment. Siri also has a brand-new design with an elegant glowing light that wraps around the edge of the screen when Siri is active.

Siri can now give users device support everywhere they go, and answer thousands of questions about how to do something on iPhone, iPad, and Mac. Users can learn everything from how to schedule an email in the Mail app, to how to switch from Light to Dark Mode.

With onscreen awareness, Siri will be able to understand and take action with users’ content in more apps over time. For example, if a friend texts a user their new address in Messages, the receiver can say, “Add this address to his contact card.”

With Apple Intelligence, Siri will be able to take hundreds of new actions in and across Apple and third-party apps. For example, a user could say, “Bring up that article about cicadas from my Reading List,” or “Send the photos from the barbecue on Saturday to Malia,” and Siri will take care of it.

Siri will be able to deliver intelligence that’s tailored to the user and their on-device information. For example, a user can say, “Play that podcast that Jamie recommended,” and Siri will locate and play the episode, without the user having to remember whether it was mentioned in a text or an email. Or they could ask, “When is Mom’s flight landing?” and Siri will find the flight details and cross-reference them with real-time flight tracking to give an arrival time.

To be truly helpful, Apple Intelligence relies on understanding deep personal context while also protecting user privacy. A cornerstone of Apple Intelligence is on-device processing, and many of the models that power it run entirely on device. To run more complex requests that require more processing power, Private Cloud Compute extends the privacy and security of Apple devices into the cloud to unlock even more intelligence.

With Private Cloud Compute, Apple Intelligence can flex and scale its computational capacity and draw on larger, server-based models for more complex requests. These models run on servers powered by Apple silicon, providing a foundation that allows Apple to ensure that data is never retained or exposed.

Independent experts can inspect the code that runs on Apple silicon servers to verify privacy, and Private Cloud Compute cryptographically ensures that iPhone, iPad, and Mac do not talk to a server unless its software has been publicly logged for inspection. Apple Intelligence with Private Cloud Compute sets a new standard for privacy in AI, unlocking intelligence users can trust.

Apple is integrating ChatGPT access into experiences within iOS 18, iPadOS 18, and macOS Sequoia, allowing users to access its expertise — as well as its image- and document-understanding capabilities — without needing to jump between tools.

Siri can tap into ChatGPT’s expertise when helpful. Users are asked before any questions are sent to ChatGPT, along with any documents or photos, and Siri then presents the answer directly.

Additionally, ChatGPT will be available in Apple’s systemwide Writing Tools, which help users generate content for anything they are writing about. With Compose, users can also access ChatGPT image tools to generate images in a wide variety of styles to complement what they are writing.

Privacy protections are built in for users who access ChatGPT — their IP addresses are obscured, and OpenAI won’t store requests. ChatGPT’s data-use policies apply for users who choose to connect their account.

ChatGPT will come to iOS 18, iPadOS 18, and macOS Sequoia later this year, powered by GPT-4o. Users can access it for free without creating an account, and ChatGPT subscribers can connect their accounts and access paid features right from these experiences.

Availability

Apple Intelligence is free for users, and will be available in beta as part of iOS 18 , iPadOS 18 , and macOS Sequoia  this fall in U.S. English. Some features, software platforms, and additional languages will come over the course of the next year. Apple Intelligence will be available on iPhone 15 Pro, iPhone 15 Pro Max, and iPad and Mac with M1 and later, with Siri and device language set to U.S. English. For more information, visit apple.com/apple-intelligence .

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