Business Exit Strategy

AAA

DEFINITION of 'Business Exit Strategy'

An entrepreneur’s strategic plan to sell his or her investment in a company he or she founded. An exit strategy gives a business owner a way to reduce or eliminate his or her stake in the business and, if the business is successful, make a substantial profit. If the business is not successful, an exit strategy enables the entrepreneur to limit losses.

INVESTOPEDIA EXPLAINS 'Business Exit Strategy'

Ideally, an entrepreneur will develop an exit strategy in the business plan, before actually going into business, because the choice of exit plan can influence business development choices. Common types of exit strategies include initial public offerings, strategic acquisitions and management buyouts. Which exit strategy an entrepreneur chooses depends on factors such as how much control or involvement (if any) he or she wants to retain in the business, and whether the entrepreneur wants the company to continue to run in the same way or is willing to see it change going forward as long as he or she receives a fair price for his or her share of ownership. A strategic acquisition, for example, will relieve the founder of his or her ownership responsibilities, but will also mean giving up control.

Different 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.

The best type of exit strategy also depends on business type and size. A partner in a medical office’s best exit strategy might be to sell 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 exit strategy as well.

RELATED TERMS
  1. Succession Planning

    A strategy for passing each key leadership role within a company ...
  2. Business Consolidation

    The consolidation of several business units or several different ...
  3. Business Recovery Risk

    A company's exposure to loss as a result of damage to its ability ...
  4. Judo Business Strategy

    A plan for managing a company by using speed and agility to mitigate ...
  5. Harvest Strategy

    A strategy in which investment in a particular line of business ...
  6. Business Process Redesign - BPR

    The complete overhaul of a key business process with the objective ...
Related Articles
  1. Entrepreneurship

    How To Create A Business Succession Plan

    Make sure the business you built continues to thrive long after you've left the helm.
  2. Fundamental Analysis

    Understanding Leveraged Buyouts

    LBOs are often presented as predatory by the media, but it really depends on which side of the deal you're on.
  3. If you become injured and no longer able to work, would your business survive?
    Insurance

    Disability Insurance For Business Owners

    If you become injured and no longer able to work, would your business survive?
  4. Investing Basics

    Analyzing An Acquisition Announcement

    These deals can make or break investors' returns. Find out how to tell the difference.
  5. Fundamental Analysis

    Interpreting A Company's IPO Prospectus Report

    Learn to decipher the secret language of the IPO prospectus report - it can tell you a lot about a company's future.
  6. Entrepreneurship

    New Year Planning For Business Owners

    Make a resolution to start your business off on the right foot in the new year.
  7. Active Trading Fundamentals

    Trade On Support For The Best Exit Strategy

    Find your sound exit strategy based on support and resistance levels, while understanding the psychology behind them.
  8. Economics

    10 Legal Business Practices Of Dubious Ethics

    Being aware of these unscrupulous methods can help you avoid them as best you can.
  9. Entrepreneurship

    Crisis Management Strategies For Business Owners

    When a PR problem arises, your company will be judged on how you handle it. Are you ready?
  10. Entrepreneurship

    4 Steps To Creating A Stellar Business Plan

    If you're going into business, you must have a plan. Find out how to put this important document together.

You May Also Like

Hot Definitions
  1. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  2. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  3. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  4. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
  5. Special Administrative Region - SAR

    Unique geographical areas with a high degree of autonomy set up by the People's Republic of China. The Special Administrative ...
  6. Annual Percentage Rate - APR

    The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents ...
Trading Center