A successful transition requires planning, so having a business exit strategy means an exit can proceed without emotional turmoil or uncertainty.

What is an exit strategy?

An exit strategy is a plan executed by an investor or business owner. The goal may be to liquidate assets or a financial position once certain criteria are met, exit a non-performing investment or business, or move on once the company has met its profit objective. Business owners may retire or there may be other reasons, legal or personal, for leaving. 

Having an exit strategy ready to act on can minimize loss and maximize profits on an investment. Exit strategies may vary for startups or established businesses. 

Successful startups may go through an initial public offering (IPO), acquisition or buyout. Established businesses may plan for family succession, selling to a partner or investor, or mergers and acquisitions. Failing companies may undergo liquidation or bankruptcy.  

An exit strategy is a business owner's plan to sell ownership of the company. It outlines the process of reducing or liquidating ownership and (ideally) making a profit. 

Dive deeper: How to make a business exit plan

8 types of exit strategies

There are eight common exit strategies – suitable for entrepreneurs, startups, and established businesses – but ultimately the one you choose will depend on your financial, personal and business goals. A business exit strategy can help to optimize profit or minimize losses, and each strategy has pros and cons.

1. M&A deals

A merger or acquisition is a strong exit plan option for any company and this an attractive option for startups and entrepreneurs. Selling the business to another company may increase the geographic footprint, eliminate competition, or acquire talent, infrastructure, intellectual property, a product or a customer base.

Advantages of a merger or acquisition

During a merger or acquisition, owners can remain in the business, leveraging the talent and opportunities of the buyer, or exit the company with a profit. Owners can negotiate the value of the business with an organized due diligence process that showcases the business value. 

M&A can be a lucrative option that remunerates owners or shareholders. A rival company may be interested in the deal to increase market share, acquire technology or intellectual property or reduce competition. If there are multiple bidders, competition may push up the sell price. 

Disadvantages of M&A as an exit strategy:

M&A processes can be time-consuming and costly and deals often fail. A merger or acquisition may not suit an owner looking for a quick exit, or with minimal time to dedicate to the deal process. Due diligence can be time-consuming, and must cover all regulatory considerations, including anti-trust laws. 

Preparation and project management tools in Ansarada Deals™ can streamline processes and ensure deal readiness. Adopting an ‘always on’ readiness for due diligence can help a company exit smoothly, with the optimal valuation. 

2. Selling your stake to a partner or investor

Individuals can exit by selling to another partner or investor, if they are not the sole owner. This allows the business to run as usual, with minimal disruption to customers or suppliers. The ‘friendly buyer’ refers to someone who is known and trusted, often an existing partner or investor.

Advantages of a ‘friendly buyer’

The company can continue to run with minimal disruption to business as usual, keeping revenue streams steady. The buyer may already have a vested interest in the company and demonstrate commitment to its long term success, ensuring the legacy of the company.

If the prospective buyer is thoroughly familiar with the business, the sale may be accelerated, with a shorter due diligence process. The total cost of selling may therefore be lower. 

Disadvantages of a ‘friendly buyer’

This strategy works best where there is an existing partnership or multiple owners, and the buyer/s are interested in increasing their stake in the company. The business may sell for a lower price (a ‘mates rate’), however, this will be offset by lower costs of selling.

3. Family succession

The family succession exit (or legacy exit) keeps a profitable business ‘in the family’. Commonly used for small or privately owned companies, planning for a family succession is no less important than any other type of exit. This is an appealing option for those who want to pass down their company legacy to a child or family member who has the knowledge and skills to run the business effectively.

Advantages of family succession

A family member may work within the company, or be employed outside the business to gain skills and experience that prepare them for leadership. As the new owner has a close connection to the daily business operations, the exit process can be smooth for employees. The person exiting may advise or consult after exiting to ensure their legacy and provide support to the successor. 

Disadvantages of family succession

Family succession may not be possible if children or other family members are not passionate and interested in the business. However, the owner/s may select another close individual to take over the business and continue the legacy.  

4. Acqui-hires

Acqui-hires is a business exit strategy where a company is bought solely to acquire talent. This type of acquisition benefits skilled employees, by providing employment opportunities and career growth after once the business itself is sold. Acquihires is a strategy that any business with unique talent or experience might consider, for example, a geotechnical engineering company operating in a unique geographical environment may be sought after for the expertise of its engineers and laboratory team. 

Advantages of acquihires

If another company is actively trying to acquire  a company’s talent, this provides leverage to negotiate stronger terms for the acquisition. Employees will enjoy a more certain and successful future.

Disadvantages of acquihire

Depending on the industry and market, it may be difficult to find a suitable buyer. The deal process may be lengthy and expensive compared to other exit strategies. Employees may also face uncertainty of change, a new company culture and potentially changes in their roles. 

5. Management and employee buyouts (MEBO)

A management and employee buyout is when management and employees agree to take over an existing company. Those already working within the business can transition into more senior roles to fill the gap in leadership. The management team is already familiar with the company and can seamlessly continue business operations. 

Advantages of management and employee buyouts

Management and employee buyouts can be streamlined and occur quickly, with the proper forward planning. The handover process should be less complex as the new owners are familiar with the business. 

Supplier relationships and customer service can continue without interruption and the legacy and purpose of the company continues. 

Disadvantages of management and employee buyouts

This exit strategy is only possible if there are interested people working within the business. There’s always some risk when management changes and planning well in advance can ensure a smooth transition.

6. Initial Public Offering (IPO)

An initial public offering (IPO) is the next most preferred and common exit strategy to mergers and acquisitions. An IPO gives the investors, owners, and the CEO the most prestige and often the highest payoff. However, a lot of work goes into preparing for an IPO. 

High regulatory costs,  shareholder scrutiny and public pressure may mean owners prefer to keep the company private and pursue M&A as an exit strategy.

Advantages of an IPO

An IPO brings prestige and profit to business owners and investors. This strategy is seen as the holy grail for startups. 

Disadvantages of an initial public offering

An initial public offering is expensive. Preparation includes extensive due diligence and ongoing regulatory activity like mandatory progress and performance reporting. Expect intense and ongoing scrutiny from stockholders, regulatory bodies and the public.

Preparing for an IPO requires the highest level of organisation and preparedness for full transparency. Using a streamlined workflow like Ansarada Deals™ helps to reduce the workload and provides complete oversight and control of the intensive due diligence process.

7. Liquidation

This exit strategy is used by failing businesses, or companies with significant assets but no buyer. Liquidation is one of the most final exit strategies, whereby the business is closed down and all assets sold off. Any cash earned must go toward paying off debts and shareholders (if there are any).

Advantages of liquidation

Liquidation ends the business operations. This can be a simple and rapid way to wind up a business for a fast exit. It allows the company to wind up and debts to be paid off, potentially saving the reputation or credit score of directors. 

Disadvantages of liquidation 

The earnings on a liquidation are often limited to the asset value, including property, equipment and possibly a client list. Employees must seek new employment, supplier relationships are terminated and customers will seek solutions elsewhere. 

8. Bankruptcy

Bankruptcy is a last resort for failing businesses. Filing for bankruptcy will result in assets seized and will impact owners' or directors' credit, but it will also relieve any financial debts.

Advantages of bankruptcy

Debts and responsibilities of the business are extinguished and the business is wound up.

Disadvantages of bankruptcy

Bankruptcy may negatively impact directors' reputations and owners' ability to access credit in future business endeavours.

Why does an exit strategy matter?

A clear exit strategy helps owners and investors follow a defined plan to minimize potential losses and maximize profits. From setting goals to navigating unexpected events, an exit strategy takes the turmoil out of decision-making. 

An entrepreneur should develop an exit strategy early on, perhaps during the initial business plan. Targets, goals and timelines are then crafted around this exit plan. 

Established companies should also have a comprehensive exit strategy. This strategy should be reviewed periodically for suitability against changing business circumstances. 

Succession planning 

Many businesses aren’t prepared for generational change, providing an opportunity for mergers and acquisitions as an exit. Planning for family succession or having a clearly defined M&A strategy can alleviate risk, optimise the sale value and ensure a smooth exit process.  

Confidence in decision-making

Exiting a business where there is no pre-defined plan in place can be stressful. The best way to ensure a lasting legacy, optimal profit and a smooth transition is to plan the exit, from due diligence to the goals of the exit, ahead of time. 

Certainty during change

Unplanned events may prompt a business exit. Whether this is a health, financial or legal matter, an exit strategy provides a plan for the transition. A defined exit strategy provides certainty for owners, employees, staff, suppliers and customers. 

Setting goals

Startups or established businesses may time an exit on reaching defined targets. This helps the company to plan how to organise operations to meet these targets within the set timeframe. The target may be a particular revenue, reaching a research and development milestone or customer volume. 

How to choose an exit strategy

The right exit strategy will vary for startups and established businesses depending on the health of the business, the industry and market and who the suitable buyers are. Planning ahead is key — mergers and acquisitions or an IPO take time and require extensive due diligence. Businesses should have a best-case and worst-case exit strategy available.  

• How much control owner/s want to retain over the business
• The health of the business and its long-term potential
• How many owners or investors are exiting
• Exit timeline
• Financial goals of the owner/s
• Prestige gained from the deal
• State of the market 

Choosing a strategy is just one part of creating an exit plan. When choosing an exit strategy, bear in mind that the process may typically take three to five years to complete, depending on the readiness and level of complexity. 

Being prepared is the key to a successful business exit for startups or established businesses

Preparation is everything when it comes to optimising the value of a business on exit. No matter which exit strategy you choose, there will always be a level of due diligence required. To capture an exit opportunity at exactly the right moment, Ansarada’s company exit software provides a secure platform for preparing, maintaining and sharing all of the information required to seal the deal. Reduce uncertainty and accelerate deal preparation with Ansarada. 

Questions about business exits

When is the right time to implement an exit strategy?

Time a business exit to maximize value by setting KPIs and targets, monitoring industry trends and market shifts and evaluating personal circumstances and business performance indicators. Having a clear strategy in place and an ‘always on’ readiness for due diligence enables owners to capitalize on an exit opportunity. 

How can an exit strategy impact stakeholders and employees?

An exit strategy can affect the financial outcomes of stakeholders, job security of employees and organizational stability. Relationships with suppliers and customers may change or end, return on investment for investors may be realized or unrealized and employees face changes to the company culture and possibly their career trajectory. A well-planned exit balances these factors to ensure the interests of all parties are considered for a smooth transition. 

What are the key steps for planning a successful exit strategy?

1. Define objectives and desired outcomes
2. Conduct comprehensive due diligence and valuations
3. Determine the exit options available
4. Develop a detailed exit plan and timeline, considering the legal, operational and financial aspects of the transition. 

Reviewing and updating the exit strategy as the business evolves or the market changes ensures readiness when it’s time to exit.