An exit strategy in business is a pre-planned means of removing yourself from a particular situation. Business owners, executives, investors, etc., use these strategies in order to either limit losses or capitalize on gains.
Well, knowing the different kinds of exit strategies in business & when to use them can help you gain the most from your business & financial assets.
Today, we will discuss some exit strategies, their types, & how to use them in the corporate/ business world.
So, let us begin!
What Is Exit Strategy In Business?
An exit strategy in business is a plan for business owners, investors & venture capitalists to sell their ownership in the company & optimize their financial positions.
Interestingly, an exit strategy in business doesn’t have to be always unpleasant. It can simply mean that you have accomplished everything you have set to do with the company & are ready to move to the next phase of your life.
For instance, your goal could be that your business achieves a certain amount of growth, or you might want to establish your business & make it marketable sufficiently.
Thus, when you think that the losses are covered, or the company is flourishing in profits, that is the appropriate time to act on your exit strategy.
However, one thing to note here is that the exit strategy in business must be advantageous both financially & emotionally, along with fitting in your desired legacy!
Who Needs An Exit Strategy?
In short, everyone!
However, if you don’t have an exit strategy, don’t worry – you aren’t alone! Many business owners build their companies from the ground up & then stop. They set out to create a product & offer numerous services to make their businesses different, but they don’t think ahead of it.
Obviously, why would they? Running a business is tiring work!
For many business owners, the thought of leaving the business is unsettling. Because of this resistance, some owners might never ponder what an exit strategy is & what exit strategy plan a company should have.
Such business owners are likely driven by fear, i.e., the fear of letting go, fear of retirement, fear of failing a new business venture, etc. The list goes on & on!
Thus, every entrepreneur, owner, investor, etc., requires an exit strategy!
Types Of Exit Strategies
Here are a few instances of exit strategies in business which can be used to protect the wealth & investment in a company:
- Liquidation
Liquidation is one of the most common exit strategies in business, specifically for sole proprietors & small businessmen looking to move ahead for better opportunities. It involves shutting down the business & selling all its assets.
As long as the business runs well & is enticing to the buyers, liquidation can be one of the simplest & fastest exit strategies.
However, the ROI, i.e., return on investment, can be low for business owners as they can only make money from selling assets/ inventory. If the business has some creditors, money from liquidation will be used to clear off the debt.
- Mergers & Acquisitions
M&A, i.e., mergers & acquisitions exit strategy, involves either merging with the other company or selling a controlling interest in a business to a profitable investor.
A company aims to work with someone interested in growing the business owner’s legacy. Thus, merging & acquisition is highly enticing to startups & entrepreneurs.
In most M&As, the principal owner is still involved in the operations & procedures of the business.
Well, a significant advantage of this exit strategy is that it allows the owner to set their terms & control the pricing.
- Legacy
The legacy exit strategy involves keeping the business in the family for the long term. For instance, the business owner wants children, spouses, or siblings to take control in future.
In order to increase the success of this exit strategy in business, the owners often mentor their successors to handle the responsibilities that come with running the company. In addition, it is also integral to choose the person who is qualified to run the company after the owner’s exit, thus enhancing the chances of continued growth & success.
- Acquihires
An acquihire business strategy involves one company buying a business to acquire its skilled & talented employees.
While the business owner won’t have any control after the acquisition, they can still make a profit & secure their employees’ futures.
Moreover, the most significant benefit of this exit strategy is that it offers more control of the negotiation process to the seller, thus allowing their employees to enjoy a more prosperous & successful future.
- Employee/ Management Buyout
In this strategy, the management or employees of the company buy it when the owner wishes to sell the business.
However, planning to exit the company/ business with this strategy can be a bit challenging at inception. That’s because the owner doesn’t know how successful the business will become in future.
Well, this can ease the transition process, thus helping create a more secure future for the buyers as well as the company. In addition, the buyers might allow the former owner a higher level of involvement in running the company.
- Bankruptcy
Another exit strategy in business is bankruptcy. When businesses file for bankruptcy, the authorities tend to seize the company’s assets to clear off the debt.
However, declaring bankruptcy doesn’t guarantee creditors will forgive all the company’s debts. But this method is quick, requires less paperwork, & allows businesses to rebuild their credit.
- Initial Public Offering (IPO)
An IPO is a pathway to making a privately owned business public. It includes selling shares of stock to the public, who further become stockholders in the company.
When done right, IPOs can be highly profitable for business owners as well as investors.
However, it is vital to note that IPOs are really expensive to organize, might be time-consuming, & are subject to stringent federal rules & regulations.
When To Use An Exit Strategy In Business?
Below are some instances/ situations wherein you can use the exit strategies. Take a look!
- Make A Profit
People can utilize exit strategies to sell their investments in the company upon achieving a specific profit adjective. For instance, many online publishers sell their sites after making some profit.
The same practice is common among angel investors as well who fund startups. The sales can help investors make profits & then head on to new projects.
- Limit Losses
A business might begin to experience losses because of some legal issues, market disruptions, poor management, etc. Irrespective of the case, an exit strategy is an effective way to liquidate losses from a company/ business which is not making any profits.
This way, the investors can prevent losses from their investments in the company.
- Improving The Future Of The Company
Even after their departure, the owner/ investor wishes to ensure the company’s future success.
Well, a company which recovers from profit & continuously yields profits helps the owner/ investor preserve its reputation.
An exit strategy can facilitate a seamless transition for the new stakeholders & help them build the entrepreneur’s legacy.
Conclusion
Now, you might ask – which is the best exit strategy in business? Well, this depends upon the type & size of the company.
For instance, a partner in a medical office might benefit by selling his share to one of the existing partners. On the contrary, a sole proprietor’s strategy might be to make as much money as possible & then close the business.
Thus, what strategies should be applied depends upon the type & size of the business.
However, along with knowing the strategies & when to use them, you must also know that these strategies aren’t always unpleasant.
Exit strategies can be used in both situations, i.e., when the business is closing or flourishing.
So, now that you know about the exit strategies do tell us which one intrigued you the most!
Also, if you wish to know more about the exit strategy, make sure to visit our website RILCA. Our dedicated team of experts is here to answers all your questions.
Also Read: Scale Your Business & Make It Bigger, Better, & Bolder
