What Is An Exit Strategy?
An exit strategy is a strategic plan created by a business owner in order to transition their ownership or role within a company. By having an exit strategy in place, a business owner can organize how they will reduce or liquidate their stake in a company and, if all goes well, achieve a positive outcome for themselves as well as for the company moving forward.
There are many different ways a business owner exit a business:
- Liquidation: closing the business and selling all the assets, most common when the business is dependent on the skills of the owner and cannot be passed or sold to someone else. In this case, the financial outcome will be limited to the value of the business’ assets.
- Passing along the business to someone close: transitioning ownership of the business internally to a family member, business partner, or the company’s employees.
- Selling the business: selling the business on the open market to a new owner with the goal of maximizing the potential sale price.
Having an exit strategy is not something reserved exclusively for large companies. It is equally important for owners of small-to-medium companies as well as owner-operators. Regardless, you still need a plan for when you decide to take a step away from the business: are you liquidating the assets? Passing it down to your children? Selling it on the open market? That’s for you to decide.
What Is The Best Exit Strategy?
Selling as Your Exit Strategy
Deciding to sell your business is a big decision, and understanding what you want to achieve from the sale—beyond just a dollar figure—will help you market your business more effectively and keep your goals at the forefront of your mind throughout the process.
- Flexibility: How willing are you to be flexible and make concessions in the selling process? Knowing your limits will help minimize delays during the process and set the standards into what you will accept.
- Price: Do you have a realistic understanding of what the value of the business is?
- Financing: Are you willing to aid in financing the deal with the right buyer?
- Time horizon: What is the selling timeline that you’re comfortable with and that works best for you and your business. This year? Next year?
- Transition: What does your ideal role look like after the sale? Do you plan to stay on and help with the transition, or to remain with the company indefinitely as an advisor? Or, would you prefer to part ways with the business fully and have no further involvement?
- Ideal buyer: What attributes would you like in a buyer? Think about how you would like the buyer to treat your employees, vendors, and customers.