Business Exit Strategy

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.

BREAKING DOWN '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. Exit Strategy

    1. The method by which a venture capitalist or business owner ...
  2. Barriers To Exit

    Obstacles or impediments that prevent a company from exiting ...
  3. Exit Point

    The price at which an investor sells an investment. The exit ...
  4. Trading Strategy

    A set of objective rules designating the conditions that must ...
  5. Profit Target

    A predetermined point at which an investor will exit a trade ...
  6. Entrepreneur

    An individual who, rather than working as an employee, runs a ...
Related Articles
  1. Entrepreneurship

    The 5 Skills Every Entrepreneur Needs

    Understand what an entrepreneur is and the type of risk an entrepreneur faces. Learn about the five skills necessary to become a successful entrepreneur.
  2. Entrepreneurship

    Why Successful Business Owners Sell Out

    Learn the motives that drive companies into the arms of an acquirer.
  3. Trading Strategies

    Must-Know Simple & Effective Exit Trading Strategies

    An effective exit strategy builds confidence, trade management skills and profitability.
  4. Professionals

    Why Equity Financing Is Worth It

    When a business takes on an equity partner, it is exposed to a number of advantages that debt financing simply cannot provide.
  5. Entrepreneurship

    10 Characteristics of Successful Entrepreneurs

    Being a successful entrepreneurs requires more than just an idea or a lot of money. Here are ten things that set successful entrepreneurs apart.
  6. Entrepreneurship

    10 Characteristics Of Successful Entrepreneurs

    Do you have the qualities of a successful entrepreneur? Those who do tend to share these 10 traits.
  7. Trading Strategies

    Day Trading: Top Scenarios To Take Profits

    Three ways to take profits while day trading, based on price movement and what the asset is doing that day.
  8. Trading Strategies

    Day Trading Strategy Steps

    Five trading strategy steps for building your own day trading strategies, managing risk, finding entry and exit points and testing for profitability.
  9. Trading Strategies

    Effective Risk Control With Scaling Trading Strategies

    Scaling strategies allow for greater risk control than simple entries or exits, letting traders seek the most advantageous prices available.
  10. Entrepreneurship

    5 Good Habits Every Entrepreneur Needs

    Understand who an entrepreneur is and what an entrepreneur does. Learn about the 5 good habits that every entrepreneur should have.
RELATED FAQS
  1. What is needed to be a successful entrepreneur?

    Discover how successful entrepreneurs succeed through passion, motivation and accepting failure. Learn about the qualities ... Read Answer >>
  2. How does an entrepreneur pay taxes?

    Find out what kind of impact tax policy can have on entrepreneurship in the United States and why all economic agents have ... Read Answer >>
  3. How does an entrepreneur help the economy?

    Find out about how entrepreneurs play a fundamental role in capitalist economies by helping to coordinate resources and bearing ... Read Answer >>
  4. What risks does an entrepreneur face?

    Find out if you have what it takes to overcome the challenges and risks associated with starting a business and becoming ... Read Answer >>
  5. What resources are available to an entrepreneur to raise capital?

    Learn how entrepreneurs can use various resources to raise capital and how each is beneficial throughout the different phases ... Read Answer >>
  6. What are some good resources to help entrepreneurs develop a business model?

    Find out what resources are available for developing a small business model; learn what websites contain useful information ... Read Answer >>
Hot Definitions
  1. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  2. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  3. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  4. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  5. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  6. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
Trading Center