An exit strategy is a plan for how an entrepreneur will eventually leave the business. In other words, is an entrepreneur’s strategic plan to sell his/her ownership in a company to investors or another company. It also includes details on what will happen to the enterprise after you have left. This strategy gives a business owner a way to reduce or liquidate his stake in a business. Therefore, If the business is successful, will make a substantial profit. On the other hand, If the business is not successful, it helps the entrepreneur to limit losses.
All businesses need one at some point, whether it’s because they are closing, selling or retiring. Ideally, an entrepreneur will develop this strategy in their initial business plan before actually going into business. Leaving a business can be stressful, and emotions can often cloud your judgment. Should this occur, a good exit strategy that you’ve come up with in advance will enable you to address tough situations rationally.
Exit Strategy Types
There are eight common exit strategies. The chosen one will depend on the entrepreneur’s financial, personal and business goals.
- Merger and acquisition exit strategy (M&A deals): selling your business to another company, who may want to increase their geographic footprint, eliminate competition, or acquire your talent, infrastructure or product.
- Selling your stake to a partner or investor: Sell your stake to a trusted partner or venture capital investor while the business runs as usual.
- Family succession: Idea of keeping a profitable business in the family. (Legacy)
- Acquihires: A company is bought solely to acquire its talent. Very beneficial to skilled employees who won’t lose their jobs
- Management and employee buyouts (MBO): Current employees are able to transition into more senior roles to fill the gap in leadership.
- Initial Public Offering (IPO): Take your business to the public and sell the shares as stock to shareholders.
- Liquidation: One of the most final exit strategies. Businesses close down and sell all assets. Any cash earned must go toward paying off debts and shareholders
- Bankruptcy: Your assets will be seized and it will impact your credit .However, it will also relieve you of financial debts.
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