how to write an exit strategy for a business plan pdf

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Business Exit Plan & Strategy Checklist | A Complete Guide

Executive Summary It’s not enough to merely hand over the keys at the closing. You need a strategy. An exit strategy. An exit strategy, as the term implies, is a plan to assist you in exiting your business. All exit plans will vary, but they all contain common elements. The three common elements that all business exit strategies should contain are: A valuation of your company.  The process of valuing your company involves three steps, the first being an assessment of the current value of your business. Once this value is calculated, you should plan how to both preserve and increase that value. Your exit options.  After you have determined a range of values for your company and developed plans for preserving and increasing this value, you can begin exploring your potential exit options. These can be broken down into inside, outside, and involuntary exit options. Your team.  Finally, you should form a team to help you prepare and execute your exit plan. Your team can consist of an M&A advisor, attorney, accountant, financial planner, and business coach. If you are considering selling your business in the near future, planning for the sale is imperative if you want to maximize the price and ensure a successful transaction. This article will give you a solid understanding of these elements and how you can put them together to orchestrate a smooth exit from your business.

Business Exit Plan Strategy Component #1: Valuation

Your exit strategy should begin with a  valuation, or appraisal,  of your company. The process of valuing your company involves three steps, the first being an assessment of the current value of your business. Once this value is calculated, you should then plan how to both preserve and increase the value of your business.

Let’s explore each of these components — assess, preserve, increase — in more depth.

Assess the Value

The first step in any exit plan is to assess the current value of your business.

Here are questions to address before beginning a valuation of your company:

• Who  will value your company?
• What methods  will that person use to value your company?
• What form  will the valuation take?

Who:  Ideally,  whoever values your company should have real-world experience buying and selling companies , whether through business brokerage, M&A, or investment banking experience. They should also have experience selling companies comparable to yours in size and complexity. Specific industry experience related to your business is helpful, but not essential, in our opinion. There are loads of professionals out there who possess the academic qualifications to appraise your business but who have never sold a company in their lives. These individuals can include  accountants or CPAs,  your financial advisor, or business appraisers. It is essential that your appraiser have real-world M&A experience. Without hands-on experience buying and selling companies comparable to yours, an appraiser will be unprepared to address the myriad nuances of the report or field the dozens of questions that will arise after preparing the valuation.

Action Step:  Ask whoever is valuing your business how many companies they have sold and what percentage of their professional practice is devoted to buying and selling businesses versus other activities.

What Methods:  Most business appraisers perform business valuations for legal purposes such as divorce, bankruptcy, tax planning, and so forth. These types of appraisals differ from an appraisal prepared for the purpose of selling your business.  The methods used are different , and the values will altogether be different as well. By hiring someone who has real-world experience selling businesses, as opposed to theoretical knowledge regarding buying and selling businesses, you will work with someone who will know how to perform an appraisal that will stand the test of buyers in the real world.

Form:  Your M&A business valuation can take one of two forms:

• Verbal Opinion of Value:  This typically involves the professional spending several hours reviewing your financial statements and business, then verbally communicating an opinion of their assessment to you.
• Written Report:  A written report can take the form of either a “calculation of value” or a “full report.” A calculation of value cannot be used for legal purposes such as divorce, tax planning, or bankruptcy, but for the purpose of selling a business, either type is acceptable.

Is a verbal or written report preferable? It depends. A verbal opinion of value can be quite useful if you are the sole owner and you do not need to have anyone else review the valuation.

The limitations of a verbal opinion of value are:

• If there are multiple owners, there may be confusion or disagreement regarding an essential element of the valuation. If a disagreement does arise, supporting documentation for each side will be necessary to resolve the disagreement.
• You will not have a detailed written report to share with other professionals on your team, such as  attorneys , your accountant, financial advisor, and insurance advisor.
• The lack of such a detailed report makes it difficult to seek a second opinion, as the new appraiser will have to start from scratch, adding time and money to your process.

For the reasons above, we often recommend a written report, particularly if you are not planning to sell your business immediately.

We have been involved in situations in which CPA firms have  valued a business  but had little documentation (one to two pages in many cases) to substantiate the basis of the valuation.

In one example, the CPA firm’s measure of cash flow was not even defined; it was simply listed as “‘cash flow.” This is a misnomer as there are few agreements regarding the technical definition of this term. As a result, any assumption we might have made would have led to a 20% to 25% error at minimum in the valuation of the company. By having a written report in which the appraiser’s assumptions are documented, it is simple to have these assumptions reviewed or discussed.

Note:  When hiring someone to value your company, you are paying for a professional’s opinion but keep in mind that this opinion may differ from a prospective buyer’s opinion.  Some companies have a narrow range of value (perhaps 10% to 20%), while other companies’ valuations can vary wildly based on who the buyer is, often by up to 100% to 200%.  By having a valuation performed, you will be able to understand the wide range of values that your company may attain. As an example, business appraisers’ valuations often contain a final, exact figure, such as $2,638,290. Such precision is misleading in a valuation for the purpose of a sale. We prefer valuations that result in a more realistic price range, such as $2,200,000 to $2,800,000. An experienced M&A professional can explain where you will likely fall within that range and why.

Preserve the Value

Once you have established the range of values for your company, you should develop a plan to “preserve” this value. Note that preserving value is different from increasing value. Preserving value primarily involves preventing a loss in value.

Your plan should contain clear strategies to prevent catastrophic losses in the following categories:

• Litigation:  Litigation can destroy the value of your company. You and your team should prepare a plan to mitigate the damaging effects of litigation. Have your attorney perform a legal audit of your company to identify any concerns or discrepancies that need to be addressed.
• Losses you can mitigate through insurance:  Meet with your CPA, attorney, financial advisor, and insurance advisor to discuss potential losses that can be minimized through intelligent insurance planning. Examples include your permanent disability, a fire at your business, a flood, or other natural disasters, and the like.
• Taxes:  You should also meet with your CPA, attorney, financial advisor, and tax planner to  mitigate potential tax liabilities.

Important:  The particulars of your plan to preserve the value of your company also depend on your exit options, which we will discuss below. Many elements of your exit plan are interdependent. This interdependency increases the complexity of the planning process and underscores the importance of a team when planning your exit.

Only after you have taken steps to  preserve  the value of your company should you begin actively taking steps to  increase  the value of your company.

Increase the Value

There is no simple method or formula  for increasing the value of any business.  This step must be customized for your company.

This plan begins with an in-depth analysis of your company, its risk factors, and its growth opportunities. It is also crucial to determine  who the likely buyer of your business will be . Your broker or M&A advisor will be able to advise you regarding what buyers in the marketplace are looking for.

Here are some steps you can take to increase the value of your business:

• Avoid excessive customer concentration
• Avoid excessive employee dependency
• Avoid excessive supplier dependency
• Increase  recurring revenue
• Increase the size of your repeat-customer base
• Document and streamline operations
• Build and incentivize your management team
• Physically tidy up the business
• Replace worn or old equipment
• Pay off equipment leases
• Reduce employee turnover
• Differentiate your products or services
• Document your intellectual property
• Create additional product or service lines
• Develop repeatable processes that allow your business to scale more quickly
• Increase  EBITDA or SDE
• Build barriers to entry

Note:  A professional advisor can help you ascertain and prioritize the best actions for your unique situation to increase the value of your business. Unfortunately, we have seen owners of businesses spend three months to a year on initiatives to increase the value of their business, only to discover that the initiatives they worked on were unlikely to yield any value to a buyer.

Business Exit Strategy Component #2: Exit Options

After you have determined a range of values for your company and developed plans for preserving and increasing this value, you can begin exploring your potential exit options.

Note:  These steps are interdependent. You can’t determine your exit options until you have a baseline valuation for your company, but you can’t prepare a valuation for your business until you have explored your exit options. A professional can help you determine the best order to explore these steps, or if the two components should be explored simultaneously. This is why real-world experience is critical.

All exit options can be broadly categorized into three groups:

• Inside:  Buyer comes from within your company or family
• Outside:  Buyer comes from outside of your company or family
• Involuntary:  Includes involuntary situations such as death, divorce, or disability

Inside Exit Options

Inside options include:

• Selling to your children or other family members
• Selling to your business to your employees
• Selling to a co-owner

Inside exits require a professional who has experience dealing with family businesses, as they often involve emotional elements that must be navigated and addressed discreetly, gracefully, and without bias. Inside exit options also greatly benefit from tax planning because if the money used to buy the company is generated from the business, it may be taxed twice. Lastly, inside exits also tend to realize a much lower valuation than outside exits. Due to these complexities, most business owners avoid inside exits and choose outside options. Fortunately, most M&A advisors specialize in outside exit options.

Outside Exit Options

Outside exit options include:

• Selling to a private individual
• Selling to another company or  competitor
• Selling to a financial buyer, such as a private equity group

Outside exits tend to realize the most value. This is also the area where business brokers, M&A advisors, and investment bankers specialize.

Involuntary Exit Options

Involuntary exits can result from death, disability, or divorce. Your plan should anticipate such occurrences, however unlikely they may seem, and include steps to avoid or mitigate potential adverse effects.

Business Exit Strategy Component #3: Team

Team members.

Finally, you should form a team to help you plan and execute your exit plan. Many of these steps are interdependent — they are not always performed sequentially, and some steps may be performed at the same time. Forming a team will help you navigate the options and the sequence.

Your team should involve the following:

• M&A Advisor/Investment Banker/Business Broker:  If you are considering an outside exit.
• Estate planning
• Financial planning
• Tax planning, employee incentives, and benefits
• Family business
• Accountant/CPA:  Your accountant should have experience in many of the same areas as your attorney, along with audit experience and retirement planning. Again, it is unlikely that your CPA possesses all of the skills you need. If further expertise is needed, the CPA should be able to access the skills you need, either through colleagues at their firm or by referral to another accountant.
• Financial Planner/Insurance Advisor:  This team member is critical. We were once in the late stages of a sale when the owner suddenly realized that, after deducting taxes, his estimated proceeds from the sale would not be enough to retire on. An experienced financial planner can help with matters like these. They should have estate and business continuity planning experience, as well as experience with benefits and retirement plans.
• Business Coach:  A business consultant or coach may be necessary to help implement many of the changes needed to increase the value of your business, such as building infrastructure and establishing a strong, cohesive management team. Doing this often requires someone who can point out your blind spots. A coach can help you take these important steps.

Where to find professionals for your team

The best way to find professionals for your team is through referrals from trusted friends and colleagues who have personally worked with the professional in question. Don’t ignore your intuition, however. It’s important that you and your team members have good chemistry.

The Annual Audit

We recommend that you assemble your professional advisors for an annual meeting to perform an audit of your business. The goal of this audit is to prevent and discover problems early on and resolve them. As the saying goes, “An ounce of prevention is worth a pound of cure.”

Your advisors are a valuable source of information. This annual meeting is an opportunity to ensure that they’re all on the same page and that there are no conflicts among your legal, financial, operational, and other plans. An in-person or virtual group meeting enables you to accomplish this quickly and efficiently.

A sample agenda might include a review of the following:

• Your operating documents
• New forms of liability your business has assumed
• Any increase in value in your business and changes that need to be made, such as increases in insurance or tax planning
• Capital needs
• Insurance requirements and audit, and review of existing coverages to ensure these are adequate
• Tax planning — both personal and corporate
• Estate planning — includes an assessment of your net worth and business value, and any needed adjustments
• Personal financial planning

If you are contemplating selling your business, creating an exit plan will answer these critical questions:

• How much is my business worth? To whom?
• How much can I get for my business? In what market?
• How much do I need to make from the sale of my business to meet my goals?

Taking the strategic steps discussed in this article — assembling a stellar professional team and optimizing the team’s collective experience — will get you well on your way toward successfully selling your business and turning confidently toward your next adventure.

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Start » strategy, ready to move on how to create an exit plan for your business.

Exit plans are necessary to secure a business owner’s financial future, but many don’t think to establish one until they’re ready to leave.

An exit strategy is an important consideration for business owners, but it’s often overlooked until significant changes are necessary. Without planning an exit strategy that informs business direction, entrepreneurs risk limiting their future options. To ensure the best for your business, plan your exit strategy before it’s time to leave.

What is an exit strategy?

An exit strategy is often thought of as the way to end a business — which it can be — but in best practice, it’s a plan that moves a business toward long-term goals and allows a smooth transition to a new phase, whether that involves re-imagining business direction or leadership, keeping financially sustainable or pivoting for challenges.

A fully formed exit strategy takes all business stakeholders, finances and operations into account and details all actions necessary to sell or close. Exit strategies vary by business type and size, but strong plans recognize the true value of a business and provide a foundation for future goals and new direction.

If a business is doing well, an exit strategy should maximize profits; and if it is struggling, an exit strategy should minimize losses. Having a good exit strategy in practice will ensure business value is not undermined, providing more opportunities to optimize business outcomes.

[Read more: What Is a Business Valuation and How Do You Calculate It? ]

Benefits of an exit strategy

Planning a complete exit strategy well before its execution does more than prepare for unexpected circumstances; it builds purposeful business practices and focuses on goals.

Even though a plan may not be used for years or decades, developing one benefits business owners in the following ways:

• Making business decisions with direction . With the next stage of your business in mind, you will be more likely to set goals with strategic decisions that make progress toward your anticipated business outcomes.
• Remaining committed to the value of your business . Developing an exit strategy requires an in-depth analysis of finances. This gives a measurable value to inform the best selling situation for your business.
• Making your business more attractive to buyers . Potential buyers will place value in businesses with planned exit strategies because it demonstrates a commitment to business vision and goals.
• Guaranteeing a smooth transition . Exit strategies detail all roles within a business and how responsibilities contribute to operations. With every employee and stakeholder well-informed, transitions will be clear and expected.
• Seeing through business — and personal — goals after exit . Executing an exit strategy that’s right for your business’s value and potential can prevent unwanted consequences of exit, like bankruptcy.

Because leaving your business can be emotional and overwhelming, planning a proper exit strategy requires diligence in time and care.

Weighing your options: closing vs. selling

There are two strategies to consider for your exit plan.

Sell to a new owner

Selling your business to a trusted buyer, such as a current employee or family member, is an easy way to transition out of the day-to-day operations of your business. Ideally, the buyer will already share your passion and continue your legacy.

In a typical seller financing agreement, the seller will allow the buyer to pay for the business over time. This is a win-win for both parties, because:

• The seller will continue to make money while the buyer can start running the show without a huge upfront investment;
• The seller may also remain involved as a mentor to the buyer, to guide the overall business direction; and
• The transition for your employees and customers will be a smooth one since the buyer likely already has a stake in the business.

However, there are downsides to selling your business to someone you know. Your relationship with the buyer may tempt you to compromise on value and sell the business for less than what it’s worth. Passing the business to a relative can also potentially cause familial tensions that spill into the workplace.

Instead, you may choose to target a larger company to acquire your business. This approach often means making more money, especially when there is a strong strategic fit between you and your target.

The challenge with this option is the merging of two cultures and systems, which often causes imbalance and the potential that some or many of your current employees may be laid off in the transition.

[Read more: 5 Things to Know When Selling Your Small Business ]

Liquidate and close the business

It’s hard to shut down the business you worked so hard to build, but it may be the best option to repay investors and still make money.

Liquidating your business over time, also known as a “lifestyle business,” works by paying yourself until your business funds run dry and then closing up shop.

The benefit of this method is that you will still get a paycheck to maintain your lifestyle. However, you will probably upset your investors (and employees). This method also stunts your business’s growth, making it less valuable on the market should you change your mind and decide to sell.

The second option is to close up shop and sell assets as quickly as possible. While this method is simple and can happen very quickly, the money you make only comes from the assets you are able to sell. These may include real estate, inventory and equipment. Additionally, if you have any creditors, the money you generate must pay them before you can pay yourself.

Whichever way you decide to liquidate, before closing your business for good, these important steps must be taken:

• File your business dissolution documents.
• Cancel all business expenses that you no longer need, like registrations, licenses and your business name.
• Make sure your employee payment during closing is in compliance with federal and state labor laws.
• File final taxes for your business and keep tax records for the legally advised amount of time, typically three to seven years.

Steps to developing your exit plan

To plan an exit strategy that provides maximum value for your business, consider the six following steps:

• Prepare your finances . The first step to developing an exit plan is to prepare an accurate account of your finances, both personally and professionally. Having a sound understanding of expenses, assets and business performance will help you seek out and negotiate for an offer that’s aligned with your business’s real value.
• Consider your options . Once you have a complete picture of your finances, consider several different exit strategies to determine your best option. What you choose depends on how you envision your life after your exit — and how your business fits into it (or doesn’t). If you have trouble making a decision, it may be helpful to speak with your business lawyer or a financial professional.
• Speak with your investors . Approach your investors and stakeholders to share your intent to exit the business. Create a strategy that advises the investors on how they will be repaid. A detailed understanding of your finances will be useful for this, since investors will look for evidence to support your plans.
• Choose new leadership . Once you’ve decided to exit your business, start transferring some of your responsibilities to new leadership while you finalize your plans. If you already have documented operations in practice in your business strategy, transitioning new responsibilities to others will be less challenging.
• Tell your employees . When your succession plans are in place, share the news with your employees and be prepared to answer their questions. Be empathetic and transparent.
• Inform your customers . Finally, tell your clients and customers. If your business will continue with a new owner, introduce them to your clients. If you are closing your business for good, give your customers alternative options.

The best exit strategy for your business is the one that best fits your goals and expectations. If you want your legacy to continue after you leave, selling it to an employee, customer or family member is your best bet. Alternatively, if your goal is to exit quickly while receiving the best purchase price, targeting an acquisition or liquidating the company are the optimal routes to consider.

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Business Exit Strategy Planning

Written by Dave Lavinsky

This guide to planning your exit strategy is the result of Growthink’s 20+ years of experience helping companies develop successful exit plans.

The guide starts by explaining what a business exit strategy is. It then explains the types of exit strategies available to your business.

It then discusses the key takeaways to successful exit strategy planning. In this section, we spend a significant amount of time going through the 20 ways to maximize the value of your company to realize a successful exit.

Finally, this guide provides helpful tips regarding how to create an exit strategy business plan for your organization.

What is a Business Exit Strategy?

A business exit strategy is a plan that an owner or executive creates and follows to liquidate their stake in a business, ideally at a substantial profit.

A successful business exit strategy requires careful planning and should be periodically revised to best reflect the current business conditions.

Types of Common Exit Strategies

To ultimately build an effective exit plan it’s important to understand the ways you can exit a business and which type of exit aligns with your business goals and values.

For example, if your end goal is generating money and personal wealth, then selling your business to a competitor or a private equity group might be a viable exit plan. However, if you are more attached to your business’ legacy and wish to see it operational even after your exit, then selling to current skilled employees or family member succession planning might be business exit strategies worth exploring.

Below are the six core types of exit strategies, organized into two core categories: Selling Your Business and Other Business Exit Strategies.

Selling Your Business

There are three main audiences to consider when selling your business: another business, a financial group, and employees. When evaluating the sale, gauge the attractiveness of your business from the perspective of potential buyers or other investors.

A solid reputation, customer base, and track record of growth are some factors that make a business appealing to buyers. Other factors could include strong cash flow, patented intellectual property, or niche expertise. Note that these factors are discussed in the “Keys to Successful Exit Strategy Planning” section later in this guide.

Another Business (or a Strategic Buyer) : Businesses acquire other businesses for a variety of reasons. From a buyer’s perspective, a strategic acquisition is often the quickest way to grow and/or diversify a business. It is also a surefire way to eliminate competition. For these reasons, valuations in strategic acquisitions are often highest. The drawback to this path is that most companies do not have an active mandate to acquire another business. A business owner may first need to be convinced of the idea of an acquisition exit strategy generally before entertaining the specific opportunity to purchase your business. He or she may then need to obtain financing to complete a transaction. Both of these elements can slow your exit process.

Therefore, when exploring this path it is important to plan ahead and identify firms that could be potential acquirers by keeping up with transaction activity in the same industry. Keep a lookout for firms that are actively buying other businesses and position your business in a way that appeals most to them. This will maximize your chances of receiving an enviable acquisition offer from a larger business that is prepared to buy.

Financial Buyer : A financial buyer refers to an individual or group, like a private equity firm, who is primarily interested in the cash flows your business can generate post-acquisition. Financial buyers’ sole activity is the buying and selling of businesses, so these buyers are prepared to efficiently and effectively evaluate a business and have capital in place to quickly execute a transaction. Given their valuation approach and goal of future cash flows, financial buyers are typically looking for relatively high historical operating profits ($3 million at a minimum). Typically private equity groups value a company based largely, if not exclusively, on a multiple of past operating profits. These multiples may or may not take into consideration the growth opportunities you see for your business and so you may not see the same valuation as a strategic buyer.

Your Employees : Selling the business to employees is another business exit strategy to consider. The advantage of this employee or management buyout strategy is that you are transitioning to people who are well-versed in the business and have a vested interest to see it thrive. If you are structured as a corporation, you can create an Employee Stock Option Plan (ESOP), which allows employees to vest ownership in your business. When you are ready to exit, the larger business then purchases your shares from you and redistributes them to the remaining employees. A similar option is establishing a worker-owned cooperative. In this scenario, employees invest personal capital into shares of the cooperative. For this to work, it is essential that you foster a participatory culture in your organization and be mentally prepared to stay on until the transition is complete.

Other Business Exit Strategies

If you do not plan to sell your business, the following are other exit strategies to consider.

Family Succession : This business exit strategy involves transferring the mantle of leadership to the next generation in your family. This common exit strategy is popular with owners who wish to see their legacy continue. The advantages of family succession include the ability to choose a successor of your choice and groom them. It also allows for the sole business owner to remain involved. The success of this exit strategy often hinges on the personal attributes and professional skills of the new successor. Their commitment to the family business and the quality of their relationships with other employees are also critical factors.

Asset Sale : This business exit strategy involves shutting down the entire business and selling some or all its assets. For this exit strategy to be profitable the business needs to have certain value-adding assets it can sell, such as land, building(s), or equipment.

Compared to a stock sale, asset sales typically involve limited negotiations. You also do not have to worry about the transfer and transition of the business ownership. The negative obviously is the loss of the business you built.

Taking Your Business Public : Another company exit strategy you may consider is an Initial Public Offering (IPO). We mention this last since it’s only relevant to a tiny portion of companies. An IPO involves selling your business in public markets like the New York Stock Exchange (NYSE). IPOs receive wide media coverage but are not very common. This is because they are very expensive and laborious to undertake. Every IPO requires thorough financial, operational, and staffing reports among others which can be very costly to produce. Incurring such costs is not feasible for small to medium-sized businesses; hence this exit strategy is not practical for many organizations. If you do manage an IPO then the pros are instant popularity as IPOs are usually quite a hyped event. You might even get lucky and have your business valued highly on the stock market leading to your stock value appreciating exponentially.

What’s the Best Exit Strategy?

There is no single best or preferred exit strategy. The ideal choice for your business depends on your unique circumstances.

Your Business Goals : You need to assess how ready you are to give up control of the business and when you want to exit. This is a personal decision but consider this: if you have been running the business solo or with a very small team, then an initial public offering (IPO) or selling to a larger business may not be the best option.

Your Business Size and Structure : Another key consideration is your company size and structure. If you are a small business, then an asset sale or family member succession might be the more feasible option for you. On the other hand, if you are a corporation with tens or hundreds of employees, then going public is a more viable option.

Your Business Age and Stage : The next thing you need to consider is your company’s age and stage. If your business is young and growing, then you might want to consider an IPO as your exit strategy. However, if your business is in its maturity stage or even in decline, then an asset sale or family succession might be more suitable.

The Bottom Line

No one can tell you what the best exit strategy is for your business. The key is to weigh all the options and make a decision that aligns with your personal and professional goals for a successful future.

Keys to Successful Exit Strategy Planning

The key to successful business exit planning involves just two steps: 1) determining how strategic or financial buyers will value your business, and 2) maximizing that value.

Determining How Your Business Will/Might Be Valued

As discussed above, if you seek a financial buyer, they will value your business based on your company’s financials, cash flow, and future growth prospects.

Strategic buyers, which nearly always pay more money than financial buyers, and thus should generally be your focus, will value your business differently.

The best way to identify how they will value your business is to:

• Research acquisitions in your market (via trade journals, Google searches, etc.)
• Determine exactly what metrics will you be primarily valued on? Ideally in your searches, you will see what attributes were mentioned in articles discussing the acquisitions. Did they mention the acquired company’s revenues, # of subscribers/customers, market share, EBITDA? Whatever metrics are mentioned will be key-value drives.
• Identify factors multiple strategic buyers would value, such as new products, a distribution network, intellectual property (IP), unique location(s), financial savings, better systems/processes, permits, etc. These factors are discussed in more detail in the next section.

Maximize the Value of Your Business

To help in your business exit planning, we have identified 20 ways to build and maximize the value of your business. Each of these concepts is discussed in detail below.

1. Build Synergistic Value

Synergistic value is when you and an acquiring company together have more value than the two separate companies.

So how might you create synergy? Perhaps your products or services could be sold to the acquiring company’s large customer base?

For example, maybe the acquiring business sells parts to bicycle stores and you have a new part that is also sold to bicycle stores. But perhaps they sell to 5,000 bicycle stores and you only sell to 500.

By getting your part into the additional 4,500 stores, they may be able to increase your sales tenfold. That’s huge synergy.

There are many other areas of potential synergy. Perhaps you have a unique core competency that can be leveraged by the acquiring business. Maybe you’re an incredible Internet marketer and the company that wants to acquire you is not great at internet marketing. And by leveraging your unique marketing skills they could dramatically grow their business.

So think through the synergy fit. Think through what companies might want to buy you at some point and what synergistic value you could bring to that organization.

2. Diversify & Lock Down Your Customer Base

The next thing you can do to maximize the value of your business is to diversify and lock down your customer base.

There’s a threat to your company’s value when you have a concentrated customer base, which is few customers or customers representing 5%, 10%, or more of your sales. That is risky because if one of your bigger customers or multiple big customers leave, your sales and profits could drop precipitously.

Another big risk is when customers have personal relations with the owner because you (the owner) would be lost after the acquisition. Or if customers have personal relationships that are too strong with a salesperson and that salesperson leaves your business and the customer leaves us with them.

So what are the solutions to these threats?

First, diversify your customer base. You need to be thinking about diversifying your customer base so that you don’t have the risk of a big customer or more leaving.

Secondly, if possible, secure contractual sale agreements such as long-term contracts and licenses to ensure ongoing sales from customers. The idea here (and lowest risk to buyers) is contractually recurring revenues.

3. Diversify Vendors

The third thing you want to do to maximize the value of your business is to diversify your vendors. Consider what would happen if a key vendor raises its prices or goes out of business. Would your business be in trouble?

Acquirers are going to ask what happens if something happens to one of your vendors. Likewise, you need to be asking this question of your business right now.

So what are the solutions?

Finding and using multiple vendors. Importantly, you’re probably not going to generate more revenue tomorrow because you spend hours looking for multiple vendors. But it’s going to make your business stronger. It’s going to remove risk from your business and make it more valuable to acquirers.

4. Put “Successor” Clauses in Customer (and Partner, Vendor/Supplier, etc.) Contracts

The next way to maximize your value is to put successor clauses in your customer, partner, and vendor contracts.

Successor clauses ensure that your key contracts survive significant changes in ownership so the buyer receives full value from them. Many contracts become void if your business transfers ownership and you obviously don’t want that. So when you sign contracts with customers, vendors, partners, etc., make sure you have clauses that the contract survives the acquisition of your company. If not, this could significantly reduce the value of your business.

5. Bolster Your Senior Management Team

The next way to maximize the value of your business is to bolster your senior management. You need to make sure your business can run without you because then there’s less risk to the buyer.

Doing this also means that you might need to stay with the business for less time after you sell it. To bolster your senior team, and make sure that you’ve hired and trained quality people that can run the business for you.

6. Bolster Your Middle Management Team

The next thing to boost value is to bolster your middle management team. Once again, you need more trained people so the business can run without you. This lessens the risk to a buyer.

Having trained middle management will help ensure a smooth transition to the new owner. There’s always going to be a transition period where you’re integrating your business with the acquirers. The more trained staff you have makes it much easier for the acquirer to buy your business and have the business run as usual from the get-go.

7. Build Management Team Solidarity

The next value-building strategy is to build management team solidarity on a day-to-day basis. To succeed with the day-to-day business operations, your team must have the same business vision and financial goals as you.

During the sales process to an acquirer, the same holds true. This is because buyers will interview your team members individually during the due diligence phase to make sure there is a cohesive vision/direction among your key employees.

8. Improve the Quality of Your Team

Will acquiring your team add significant value to the buyer? How unique is your team? And do you have unique talents?

As you can imagine from these questions, your team can add a lot of value to your company.

To begin, if your team has unique technical capabilities, great customer service people, etc., it could have great value to an acquirer. Likewise, it’s extremely valuable if your team have a track record or ability to do things really well on an ongoing basis, such as:

• Conduct R&D to come up with new products
• Bring new products to market
• Provide exceptional customer service

So, think about what your team is great at, and work to make them even better.

9. Build Brand Value

The next way to maximize the value of your company is to build your brand. The value of your brand and your reputation can be considerable. A well-known brand results in recognition which often equals sales for the foreseeable future.

So building your brand gives you a lot of recognition, which has a lot of value. Building your brand also gives you trust. This is why a lot of brands are acquired.

So think about the value of your brand. How can you build your brand to make it more well-known?

10. Build Intellectual Property

Intellectual Property (IP) can provide significant value. IP includes your patents, processes, copyrights, trademarks and service marks, and trade secrets.

Sometimes your IP value can represent the entire purchase price of your business.

Think about intellectual property and how you use that IP to create real value for your company. And ideally how it can provide even more value to an acquirer.

11. Improve Your Culture

The next way to build value is through your culture.

Zappos is a great example of a company that built a great culture. And as a result, Amazon acquired it for over a billion dollars.

So you think about how you can build a great company culture that allows you to build a solid company and be acquired for a lot of money. Importantly, Zappos’ culture became a threat to Amazon and Amazon purchased the company because of this threat.

So consider this question: can your culture positively “infect” the culture of an acquirer?

It’s one thing to build a great culture but think about if you can create a great culture that when acquired, is so great and strong that you can “infect” the larger company that buys you with it. That’s a great way to build value.

12. Build Back-Office Infrastructure

You can also build value through your back-office infrastructure.

Your back-office infrastructure includes all the departments that support your revenue-generating areas, such as IT, human resources, accounting, legal, etc. A solid back-office ensures your business continues to run smoothly without you and after an acquisition.

This is really important to financial buyers because financial buyers want to see your business grow as a standalone business. They’re looking to acquire your business, grow it for four to eight years, and then sell it.

A strong back-office infrastructure can also be important for strategic buyers. They will care if you have a strategic or competitive advantage in any of these back-office areas. If not, they’re going to dissolve or integrate your back office into their own departments.

13. Build Revenues, Subscribers/Customers &/or EBITDA

Building revenue streams, subscribers, customers, and/or EBITDA is an obvious way to really build value in your company.

Subscribers and customers are assets that are highly valued and bring future sales and maximize profits.

And revenue and EBITDA are key financial measures that show your success and can be used to estimate the price at which acquirers might purchase your company.

14. Acquire Great Locations

Another way to maximize your value. Is by making sure your location(s) is/are very strong.

By locking up the right locations, you can add a lot of value to your organization.

For example, Rosetta Stone has kiosk lease agreements at airports throughout the world. That’s really valuable…if an acquirer wanted to buy Rosetta Stone, they would instantly gain visibility in airports throughout the world.

Likewise, when FedEx purchased Kinko’s, it instantly gained hundreds of well-placed retail locations.

15. Build Your Distribution Network

Another way to maximize value is through your distribution network.

Distributors, resellers, and/or affiliates are individuals and organizations that sell their products and services for you. That’s a huge asset that can maximize your revenues and profits, and which could do the same for your acquirer.

So, the question to ask yourself is: what can you do to gain a large distribution network that will increase your revenues and make you a more attractive acquisition target?

16. Improve Your Product/Service Portfolio

The next way to really build value in your business is to focus on your product and service portfolio.

Think about the products and services you currently offer. Are they unique? Can they be leveraged by an acquirer? Do they represent a threat to an acquirer’s business?

Think about what new products and or services you can build to develop value. More products generally equal more revenues, more customers, more intellectual property, and less vulnerability.

The more products you have, the more you could cross-sell your current customers, upsell them, and the less vulnerable you’d be to a competitor who launches a similar product to yours.

17. Show Financial Savings

The next way to maximize value is through financial savings. Do you have economies of scale in certain areas? Do you do things so often that you’re able to get your costs down on a per-unit basis? If so, such cost savings could be valuable to an acquirer.

18. Create Systems & Processes

Likewise, do you have any processes, systems and ways and ways of doing business that save money? These will all be valuable to your current business and to acquirers.

Likewise, systems and processes can add tremendous value to your business right away. And quality systems and processes are valuable assets. They allow you to perform with precision and consistency. They allow you to perform at lower costs and gain efficiencies and allows you to quickly and easily train and integrate new team members.

So focus on building quality systems and processes.

19. Create a Great Website

Your website can also be a source of value maximization too.

Not only might your website, based on your brand, attract visitors. But, if you’ve invested in SEO or search engine optimization, you might organically rank for many keywords. If your site is SEO optimized, an acquirer might be able to use it to rank for additional keywords that have significant value to them.

So it’s worth building a great website and optimizing it for search engines.

20. Achieving Government Hurdles

Achieving/overcoming government hurdles can add significant value to your business. Getting permits, zoning approval licenses, regulatory approvals, and certifications can be extremely valuable in the short-term to your business, but also really valuable to an acquirer.

Doubling the Value of Your Company

Doing everything listed above can exponentially increase the value of your business. In addition, you can literally double the value/purchase price of your company by expertly executing the sales transaction:

• Presentation : how you position your company and support your valuation
• Professional sales process : getting more buyers, revealing information at the right times, etc.
• Negotiating and closing skills : getting the right deal done

Creating Your Exit Strategy Business Plan

The process of creating your exit strategy business plan includes the following:

1. Create a List of Potential Acquirers

If you are interested in being acquired at some point in the future, identify companies you think would be ideal.

2. Determine How You Will/Might Be Valued

Go through the 20 value maximization concepts presented above and identify which of them would be most valuable to each potential acquirer.

3. Create Your Strategic Plan

In your strategic plan, identify each of the ways you will build value (e.g., develop new systems).

Document the timeline for creating each new asset along with the financial requirements and the staff members who will lead each initiative.

How Growthink Can Help

These concepts should help you think about how your brand can be more valuable to potential acquirers. The goal is not only to attract them but also to convert casual visitors into sales. Achieving these goals will make it easier for you to get out of the rat race and finally achieve success as an entrepreneur or business owner. If this all sounds complicated and overwhelming, we’re here to help!

You can get started today on your exit strategy using our Ultimate Business Plan Template to help you create a business plan if you are seeking funding. If you don’t need outside funding to execute your exit plan, use our Ultimate Strategic Plan Template .

Our team of experts is also ready to help! At Growthink, we specialize in helping entrepreneurs grow their businesses through expert advice on business models, business plans & strategy, financial planning, and exit strategy and valuation services. Contact us today to learn more.  

Other Helpful Business Plan Articles & Templates

How to Create an Exit Strategy Plan

In order to capture and share the critical information regarding your exit plan in an organized and easy-to-reference format, I recommend an approach like the one used by the increasingly popular business model canvas (BMC). 

The BMC is a lean startup template. It depicts in a simple, yet highly informative visual layout the nine essential building blocks of a business model: customer segments , value propositions, channels , customer relationships , revenue streams, key resources, key activities, key partnerships and cost structure. This brings us to what I call the exit strategy canvas (ESC) as a template for your exit plan. 

The main goal of the ESC is to document the essential building blocks of your exit strategy and create a shared language for communicating and iterating on your exit plan. I recommend that you lay out the ESC on one page to focus on what is absolutely critical and essential. 

I recommend that you include the following essential building blocks in your ESC.

6 Essential Building Blocks of an Exist Strategy

• Success definition : What would a successful exit look like? 
• Core hypotheses : What do you have to believe to be true for a successful exit to happen? 
• Strategic opportunities : What are key areas for value creation through partnerships? 
• Key acquirers : Who are your potential acquirers, and what are your selection criteria? 
• Risks and challenges : What can jeopardize a successful sale to an acquirer? 
• Key mitigants : What can you do to improve your chances of a successful sale? 

Success Definition 

The entire exit strategy is worthless unless it is crystal clear to all involved what specific outcome an exit is intended to achieve. Once everyone understands the destination, then they can support the journey. 

For many entrepreneurs, a successful exit is one that ensures the survival of their startup. And this survival is all about the continuation of what lies at the heart of a startup’s core values and what the founding team considers to be a part of their personal legacy. That may consist of taking its products from a regional offering to the national or global level, creating new distribution channels, or enabling new features that can make it appealing to wholly new customer segments.

As you consider breathing life into your dream scenario, make sure your definition of success answers the following: 

• How would an exit best manifest the values of your startup? 
• How could an exit best promote the mission of your startup? 
• What would be the ideal time frame for an exit transaction? 

Core Hypotheses 

The next task is to make explicit what you would have to believe to be true for that outcome to manifest. Explicitly stating your assumptions helps you and other team members to discuss and gain clarity about what are the necessary conditions for success, and use them to gauge your future progress. 

For example, if a successful exit for you would entail providing growth opportunities for your employees, then at the time of the acquisition you have to believe that your employees have sufficient skills and expertise of value to an acquirer. Thus, stating the hypothesis allows you and your team to reflect on whether this holds true for the current state of affairs, and if not, what you can do to make that a reality going forward. 

To adopt a more quantitative approach, especially if your definition of success has a valuation threshold, you need to investigate and make explicit what it would take to justify your valuation goal based on either other comparable transactions or public market valuation benchmarks. Your desired valuation will likely necessitate achieving a certain set of financial (e.g., revenues, margin, profitability profile, or unit economics) or user (e.g., customer size, growth rate) metrics. A specific valuation goal makes it much more efficient for you to screen and filter acquisition opportunities as they arise. 

More Built in Book Excerpts Why Salesforce’s Biggest Customer Hated Our Product

Strategic Opportunities 

In its simplest form, strategic opportunities are the key areas for value creation with your acquirer. They are the areas of complementarity between your strengths and those of the acquirer. 

As such, to identify areas of strategic opportunity you have to start with a good sense of the strengths and weaknesses of your startup. Then, you need to consider the strengths and weaknesses of potential acquirers and how your strengths can fill in the missing piece for their weaknesses and vice versa. This is what is referred to as “synergy.” 

If you have a prohibitively high cost of customer acquisition that prevents you from profitably growing and acquiring new customers at scale, you would have a strategic opportunity to partner with a company that has already figured out a way to acquire those customers at scale profitably but is looking for additional products to sell to those customers. 

Think of companies in your ecosystem for whom you could fill a strategic need, such as adding revenue, adding profits, staving off a competitive threat, accelerating time to market for a product or service, or improving their market share. 

As you enter into discussions with potential strategic partners, you will want to validate and revise your assumptions around areas of synergy and strategic opportunities and be on the lookout to uncover new areas to add to your list. 

Enjoying the Excerpt? Check Out the Book! Exit Path: How to Win the Startup End Game

Key Acquirers 

This is your wish list of potential acquirers. It will also serve as the list of potential strategic partners whom you will be building a business relationship with over the course of the coming months and years. Be as aspirational as possible. You are not looking for who could be an acquirer of your startup today; instead, you are looking for whom you would be thrilled to join forces with long-term. 

For most cases, you could simply state the category or type of company. For a startup serving small businesses, you could refer to “domain registrars,” “website creation platforms,” “e-commerce tool providers” as potential acquirers. 

Keep in mind that at this stage your goal is to provide directional guidance as to what are critically important criteria for assessing strategic partners and what the universe of those potential partners looks like. 

Risks and Challenges 

When considering your exit path, there are in general three types of risks that most businesses have to contend with: execution risk, market risk, and competitive risk.  

Execution Risk

Execution risk is a reflection of your core competencies, external relationships, reputation, and capitalization structure, all of which can make or break a successful exit. Weakness in your core competencies (such as an inability to manage the mergers and acquisitions process effectively, leadership gaps or a lack of a scalable business model) can stop many acquirers in their tracks. That is why building a strong business is table stakes for a successful exit.

Another often-overlooked risk factor in selling one’s startup is its capitalization structure: you increase your exit risk as you raise more money at higher valuations as well as when you grant voting rights to financial and strategic investors , as it reduces the founding team’s control and increases the possibility for others to block a transaction. It’s important that you understand the implication of those increasingly lofty valuations which at some point may render you “too expensive” for many acquirers. 

More on Startups 4 Strategies for Growing a Company Without VC Funding

Market Risk 

As those of us who have tried to sell a company during a market crash know, market risk is always around the corner, and changes in macroeconomic conditions can very much impact the appetite of potential acquirers without forewarning. Because market risk is always present, the more desperate you are to sell, the higher the impact of market risk will be on your startup, so it is ideal not to time a potential exit around a time when you think you will be running out of cash. 

Competitive Risk 

No matter how unique your startup’s offering is, there is always competition in the market. And thus there exists the competitive risk that your ideal potential acquirers snatch up your competitor instead. Be sure to identify and list your largest competitive threats as an important strategic reminder for your organization. 

Key Mitigants 

For each risk and challenge you identify, call out a clear and specific set of mitigants. 

Mitigating execution risks and competitive risks will generally involve building the requisite capabilities and creating strong relationships with your potential acquirers. The best way to mitigate against market risks, in my opinion, is to increase your operating runway so that you can live through short-term market fluctuations. 

Remember that the ESC is a tool intended to efficiently capture and communicate your exit plan. As you create your ESC, feel free to customize it to your own needs, modifying what is captured in each block or adding new blocks that you may find to be particularly well-suited for your startup’s unique set of values, challenges, and opportunities.

Excerpted from the book  Exit Path: How to Win the Startup End Game by Touraj Parang, pages 44-53. Copyright  © 2022 by Touraj Parang. Published by  McGraw Hill, August 2022.

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How to Plan Your Exit Strategy

Candice Landau

8 min. read

Updated October 27, 2023

Many people start businesses with the goal of seeking acquisition. But others decide later that it’s time to move on—they’d like to pull their time and money out of a particular venture. It’s never too early (or too late) to start planning your exit strategy.

• What is the purpose of an exit strategy?

An exit strategy is how entrepreneurs (founders) and investors that have invested large sums of money in  startup companies  transfer ownership of their business to a third party. It’s how investors get a return on the money they invested in the business.

Common exit strategies include being acquired by another company, the sale of equity, or a management or employee buyout.

• Who needs an exit strategy?

For anyone seeking  venture capital funding  or  angel investment , having a clear exit strategy is essential.

Even if you’re a small business, it’s a good idea to plan ahead and think about how you will transfer ownership of the business down the line, whether you choose to sell the business, or try to scale it and seek to be acquired. It’s never too early to plan.

• Should I include my exit strategy in my business plan?

Including your exit strategy in  your business plan  and in  your pitch  is especially important for startups that are asking for funding from angel investors or venture capitalists for funds to grow and scale.

Most of the time, small businesses don’t need to worry as much about it because they probably won’t seek investment (not all good businesses are good investments for angels and VCs). The small business founder’s goal might be to own the business themselves for the foreseeable future.

• What type of exit strategy is right for my business?

This list should give you an idea of common types of exit strategies. The type of strategy you adopt will depend on what type of company you are and your financial and strategic goals.

Here are some of the most common:

Acquisition, initial public offering (ipo), management buyout, family succession, liquidation.

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The acquisition is often known as a “merger and acquisition.” This is because, when a company decides to sell itself to another company, the buyer will often incorporate or merge the services of that company into their own product or service offerings.

This happened when Google bought YouTube, seamlessly integrating the video platform into their own search product. Now, when you google a topic, you will often notice that videos appear on your search result page.

On a smaller scale, it might happen when a coffee chain decides to buy a bakery business so that they can add a line of pastries and tarts to their menu. An acquisition or merger can be an appropriate approach for businesses of all sizes, including startups.

The best thing about an acquisition is that if you get “strategic alignment” right, you stand to sell the company for more than it may actually be worth. And, if there are multiple companies interested in your product, you may be able to raise the price further or begin a bidding war!

Reasons an outside company might seek to acquire or merge with another company range from allowing them to break into a new market, to giving them a competitive edge, or a strong built-in customer base. Or they might be interested in eliminating you as a competitor from the current market.

If you know that being acquired is your exit strategy right from the start, this gives you room to make yourself appear attractive to the companies who may be interested in purchasing you. That said, remember that those particular companies may decide not to purchase you or may never have been interested in doing so. If you do go down the road of creating a very niche product only one specific company will be interested in, you also stand to lose big time if they don’t take the bait.

This exit strategy is right for a small number of startups and larger corporations, but is not suited to most small businesses, primarily because it means convincing both investors and Wall Street analysts that stock in your business will be worth something to the general public.

For smaller companies that have already begun expanding—like  restaurants that have franchised —an IPO may be a good way for the owner to recoup money spent, though it is worth noting that he or she may not be allowed to sell stock until the  lock-up period  has passed.

A couple of well-known examples of restaurants on the stock exchange include  Buffalo Wild Wings  and  BJ’s .

If you think this is the right strategy for you, or you want to at least have the option of going public later, the easiest way to get listed is to seek investors that have done it before with other companies. They will know the ins and outs and be able to better prepare you for the process.

Speaking of the process—it’s long and hard. If you do succeed in winning over the hearts and data-centric minds of Wall Street analysts, you’ve still got to conform to the standards set by the  Sarbanes-Oxley Act , you will have underwriting fees you’ll need to pay, a potential “lock-up period” preventing you from selling your shares, and of course, the risk of seeing the stock market crash.

While an IPO may be a suitable route for a company like Twitter or Macy’s, consider whether or not you want to weather the headache of tailoring business decisions to the market and to what analysts believe will do well.

If you’ve built a business whose legacy you want to see continued long after you’re gone, you may want to consider turning to your employees.

That’s right—not only will they have a good idea of how things are run already, but they will have intimate knowledge regarding company culture, corporate goals, and a pre-existing determination to make it work.

There’s also the added bonus that you’ll have to do a lot less due diligence. Having management or employees buy your business is a good idea if legacy matters most to you. Of course, you could always consider passing the business on to family, but there’s always the risk there that they won’t understand the business, won’t have the determination to make it succeed, and if you’re splitting the business between family members, the possibility of family rivalry.

On that note, if your family has been brought up with an intimate knowledge and understanding of your business, they may well be the best people to pass things on to.

In fact, this is exactly what happened at Palo Alto Software. Founded by Tim Berry in 1988, his daughter Sabrina Parsons was made CEO and her husband Noah the COO shortly before the recession hit.

The decision was strategic and allowed Tim to pursue other interests, including putting a focus on  writing . Since then, Sabrina and Noah have adapted the flagship desktop-based business planning product,  Business Plan Pro , into a SaaS tool called  LivePlan .

Passing Palo Alto Software on to family was more fortuitous than carefully planned. Tim had always  encouraged his children  to follow their own path. In fact, none of them got degrees in business. It just so happened that Sabrina and Noah had entered the internet world early in their careers and gained the experience necessary to join and build out Palo Alto Software’s product offerings.

If you are considering passing your business on to your children or other family members, there are a number of things worth thinking about and planning for, including ensuring that whoever is set to take over the business has the relevant skill set, is competent, and is committed to the future and success of the business. This will make it a lot easier to retire.

For small businesses, liquidation is a common exit strategy. It’s one of the fastest ways to close a business, and may sometimes be the only option in cases where the operation of the business is dependent solely upon one individual, where family members are not interested in or capable of taking over, and where  bankruptcy  is close at hand.

It’s worth noting though that any profits made from selling assets need to be used to pay creditors first.

To make any money using liquidation as an exit strategy, you’re going to have to have valuable assets you can sell—like land, equipment, and so on.

If it’s not too much hassle and if your decision to liquidate is not related to finances, think instead about selling the business to the public. Are there any ways you can make it appealing?

If this isn’t an option and it’s better to close the doors before you lose money, liquidating your assets may be your best bet.

• Planning for the future?

If you’re putting together your business plan or preparing to pitch to investors for the first time, think through your exit strategy. Make sure your  financials are up to date  and that you’re reviewing them regularly so your  business’s valuation  is accurate.

If your successful exit is tied up in hitting certain financial milestones, don’t hesitate to ask your  strategic business advisor  for some guidance. There are other things you can do to prepare your business for acquisition and other exits— check out this article  for more information.

See why 1.2 million entrepreneurs have written their business plans with LivePlan

Candice Landau is a marketing consultant with a background in web design and copywriting. She specializes in content strategy, copywriting, website design, and digital marketing for a wide-range of clients including digital marketing agencies and nonprofits.

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Business Exit Strategy: Definition, Examples, Best Types

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

What Is a Business Exit Strategy?

A business exit strategy is an entrepreneur's strategic plan to sell his or her ownership in a company to investors or another company. An exit strategy gives a business owner a way to reduce or liquidate his stake in a business and, if the business is successful, make a substantial profit. If the business is not successful, an exit strategy (or "exit plan") enables the entrepreneur to limit losses. An exit strategy may also be used by an investor such as a venture capitalist in order to plan for a cash-out of an investment.

Business exit strategies should not be confused with trading exit strategies used in securities markets.

Key Takeaways

• A business exit strategy is a plan that a founder or owner of a business makes to sell their company, or share in a company, to other investors or other firms.
• Initial public offerings (IPOs), strategic acquisitions, and management buyouts are among the more common exit strategies an owner might pursue.
• If the business is making money, an exit strategy lets the owner of the business cut their stake or completely get out of the business while making a profit.
• If the business is struggling, implementing an exit strategy or "exit plan" can allow the entrepreneur to limit losses.

Understanding Business Exit Strategy

Ideally, an entrepreneur will develop an exit strategy in their initial business plan before actually going into business. The choice of exit plan can influence business development decisions. Common types of exit strategies include initial public offerings (IPO) , strategic acquisitions , and management buyouts (MBO) . Which exit strategy an entrepreneur chooses depends on many factors, such as how much control or involvement (if any) they want to retain in the business, whether they want the company to be run in the same way after their departure, or whether they're willing to see it shift, provided they are paid well to sign off.

A strategic acquisition, for example, will relieve the founder of his or her ownership responsibilities, but will also mean the founder is giving up control. IPOs are often seen as the holy grail of exit strategies since they often bring along the greatest prestige and highest payoff. On the other hand, bankruptcy is seen as the least desirable way to exit a business.

A key aspect of an exit strategy is business valuation , and there are specialists that can help business owners (and buyers) examine a company's financials to determine a fair value. There are also transition managers whose role is to assist sellers with their business exit strategies.

Business Exit Strategy and Liquidity

Different business 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, and a management buyout may not be attractive to a buyer when interest rates are high.

While an IPO will almost always be a lucrative prospect for company founders and seed investors, these shares can be extremely volatile and risky for ordinary investors who will be buying their shares from the early investors.

Business Exit Strategy: Which Is Best?

The best type of exit strategy also depends on business type and size. A partner in a medical office might benefit by selling 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 an exit strategy as well.

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Your business exit strategy in 9 steps

You’ll leave your business some day, so how do you make sure it’s on the best possible terms?

What is a business exit strategy?

An exit strategy is a plan for wrapping up your involvement in a business. For most people, that means readying the business for a change of owner. Executing a well thought-out exit strategy can increase your sale price, while ensuring the business continues to thrive after you’ve left. This can also be called succession planning. What does it involve?

Succession planning definition and goals

The aim is to leave your business in the best possible shape for a new owner. That means it should be operating at peak profitability, the books should be spick and span, and all your processes will be written down so a stranger can come in and run the place. Oh, and the business won’t need you anymore – no matter how important you once were.

It takes years to do all this. That’s why it’s never too soon to start on your succession plan, or exit strategy.

How to sell a business

Business advisors and brokers recommend these nine steps to help get a succession plan in place.

1. Pick a target buyer

There will be different priorities depending on who you're selling to. If it's family, take pains to make everything transparent and fair. You don’t want the transaction to cause tension or conflict between children. If you’re selling to employees, be prepared for staggered payments. They’ll probably start with a deposit and pay you the rest from business income. If you sell to the highest bidder, then get all your records in order as otherwise they won’t have any idea how you operate, or what sort of money you make.

2. Decide how fast you’ll want out

Some buyers, such as family or employees, won’t have the cash to buy you out straight away. You might have to keep an interest in the business and stay involved to protect your investment. If that’s the case, you’ll need to negotiate consulting fees. If you want a clean break, you’ll probably be better off selling on the open market. That may not work if you have a client services business, however. Buyers of those types of businesses will expect you to stay around to help ensure clients don't leave.

3. Get your accounting sorted

Smart buyers will ask to see at least two years worth of clean and dependable financial records. If your bookkeeping isn't all it could be, get it fixed now. And if there’s something you can do to improve profitability, do it as soon as possible. You want that upswing to show in your accounts as a sustainable trend rather than as a recent spike. Use our balance sheet template to help get things in order.

4. Make yourself redundant

No one’s going to buy your business if it can’t survive without you. If you have employees, give them the training and authority they need to succeed. Scale back your involvement. Be less available to customers and clients. Delegate big decisions. Go into work less often.

5. Ensure your business is a well-oiled machine

Ensure you have formal (and efficient) processes for getting work done. Who does what, when, and how? Make sure there are protocols to guide all this. Potential buyers will be impressed if some things in your business happen automatically.

6. Write down how everything happens in your business

Write a “how to” manual for your business, so that a stranger could pick up the reins and run everything tomorrow. Record every process, including admin. Make a note of the steps you follow for each of these tasks. While you’re at it, write formal job descriptions for employees. And create templates for tasks that are repeated in your business.

7. Figure out how to drive up the valuation of your small business

What are the things that make your business great? Do you have a really outstanding product? Loyal customers? Amazing intellectual property? Find the strengths in your business and grow them, so that they become even more valuable. Similarly, figure out the biggest holdbacks and fix them. You’ll need someone from outside the business to provide this assessment. Get your accountant involved. If they don’t have the particular skills you need, they may be able to recommend someone who does.

8. Get a guideline business valuation

You won’t know what you’ll get for your business until the day it’s sold, but you can get a rough estimate. Ask for a professional opinion. Your accountant should be able to introduce you to someone, or you could search for a local business broker. A guideline valuation will help satisfy your curiosity and set realistic expectations. If they predict a lower price than you’d hoped, you might delay your exit, and spend some time building value in the business.

9. Work on a sales pitch

Buyers need to be excited by your business, so come up with an elevator pitch that captures the essentials. Craft a story that explains why you got started, how you’ve grown, and what you’ve achieved. Paint a positive picture of the future, too, but keep it real. Incorporate stats and facts to support what you’re saying.

Exits happen

Exiting your business is inevitable. It will happen whether you’re in control of it or not. So make a plan now and start getting your business ready for the next owner. It’ll help you command a better price, and increase the chance that your business survives. Learn more about selling your business.

And remember that anything you do to benefit your future buyer, will also benefit you. You’ll have a more efficient, profitable and easier to manage business.

It’s never too soon to build a business exit strategy. Speak to your accountant or business advisor today. If you don’t have an accountant, look for one in the Xero advisor directory .

Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the content provided.

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How to Write an Exit Strategy for your Business Plan

Does your business plan contain a fail-proof exit strategy for you? If NO, here is a detailed guide on how to write an exit strategy for a business plan. Unless you are a joker of a business owner, chances are you came up with a solid business plan at the start of your business. I mean, you conducted your market analysis, and you developed strategies to plan and grow your business.

If you really did all of that, then you are right on track. But one thing you are less likely to have done is planning an exit strategy for your business. And you should do this as soonest as possible if you are yet to. Most people write plans on how to start a business but majority fail to write plans on how to exit their business.

What is an Exit Strategy?

An exit strategy is a method by which entrepreneurs and investors, especially those that have invested large sums of money in startup companies, transfer ownership of their business to a third party, or by which they recoup money invested in the business.

Some forms of exit strategies include, being acquired by another company, the sale of equity, a management-employee buyout et al

Why Prepare an Exit Strategy?

What happens to your business if eventually you die today or get involved in a ghastly accident that incapacitates you? Now I know that nobody prays for bad events or circumstances but one reality of life is that you can never know what’s coming ahead of you. The same holds true in business.

“Prepare for bad times and you will only know good times.” – Robert Kiyosaki

But there are a lot of would-be business owners who love their businesses and would think that having an exit strategy in their business plan is unnecessary. However, there is still a need to have an exit strategy in your business plan. There are two very real and practical reasons why you need to plan an exit:

• Outside investors want to collect their return. Remember that equity investments are not like loans with interest. The investor sees no return until he cashes out, or the company is sold. Even three years is a long time to wait for any pay check.
• Entrepreneurs love the art of the start. Assuming your startup takes off, you will probably find that the fun is gone by the time you reach 50 employees, or a few million in revenue. The job changes from creating a “work of art” to operating a “cookie cutter”.
• If you are seeking for investment from venture capitalist (VC) or angel investors, then an exit strategy is a must have. Even if you’re a small company, it’s a good idea to plan ahead and to actually have an idea of how you will transfer ownership of the business down the line, sell the business, or make a return on your investment.

So just as you had a plan for starting your business, you should also have an exit strategy for transforming your business into cash, should in case you lose interest in the business or run into problems later. Without wasting time, here are the four commonest exit strategies you can choose from and incorporate in your business plan:

6 Types of Exit Strategies You Can Consider and Choose From

1.  initial public offering ( ipo ).

Taking your business public is a very expensive and time consuming exit strategy, as it usually attracts huge accountant and attorney fees. But it can be very rewarding. Offering your business to the public has one simple implication: you are no longer the boss, your stakeholders are. And you will be giving reports about the business to the board of directors and stakeholders.

If you just cannot afford to let go of your business ( by selling it ), then you can relinquish a portion of your shares by taking it public. However, this exit strategy is not recommended if your business doesn’t value up to $10 million. In that case, consider other exit strategies.

For smaller companies that have already begun expanding—like restaurants that have franchised—an IPO may be a good way for the owner to recoup money spent, though it is worth noting that he or she may not be allowed to sell stock until the lock-up period has passed. Examples of restaurants on the stock market include Buffalo Wild Wings and BJ’s.

If this is your main exit strategy from the get go or you want to at least have the option of going public later, the easiest way to get listed is to seek investors that have done it before with other companies. They will know the ins and outs and can be able to better prepare you for the process.

The process of getting on an initial public offer can be long and arduous. If you do succeed in winning over the hearts and data-centric minds of Wall Street analysts, you’ve still got to conform to the standards set by the Sarbanes-Oxley Act, you will have underwriting fees you’ll need to pay, a potential “lock-up period” preventing you from selling your shares, and even with all of these, there is still a risk that the stock market could crash.

While an IPO may be a suitable route for a company like Facebook or Microsoft, you should consider whether or not you want to weather the headache of tailoring business decisions to the market and to what analysts believe will do well.

2.  Sell your business

Selling a business to another individual or company is the most common exit strategy for any business owner. This option is very easy because it can be conducted between the two parties involved without all the government regulations and oversight that comes with an IPO. As expected, if you decide to sell your business, you will be receiving cash in exchange for it.

But valuing your company is the trickiest part of any sale; as sometimes, knowing the right amount to sell your business for can be very difficult. One way to avoid selling your business for less is to get more than one appraisal of the business ( seek out some business appraisal companies to help you with this ). This way, you will be confident that you are selling for the right price.

If you are concerned about how the business would fare after you have sold it ( though this isn’t binding on you ), you’d want to sell only to a buyer that knows and understands the business and has the experience to carry on the brand’s legacy. And, depending on the closeness between you and the buyer, you can agree on payment by installments.

3.  Acquisitions and mergers

Even though acquisitions and mergers are commonly used interchangeably, there is a slight difference between both terms. An acquisition occurs when one business acquires another business. For example, Company A buys Company B and still continues running under the name of Company A but now has the strength and value of both companies combined.

A merger, on the other hand, occurs when two businesses come together to continue as a single company. A change of name usually happens after a merger. For example, Company A and Company B merge to form a new company called Company A-B. Most of the time, businesses that engage in a merger or acquisition are in the same industry and see multiple benefits in merging together or acquiring one another.

When you decide to go into a merger or acquisition deal, you can negotiate price and terms. You can request that your employees ( if you have any ) be kept on for a certain period or that your management team be retained. You can also negotiate final and annual payouts. If you cannot handle these negotiations yourself, hiring an agency would be your best bet.

4.  Liquidate your assets

This is the least desirable of all exit strategies, but sometimes the most necessary. This strategy can quickly bring in a lump of cash, and it doesn’t involve any negotiations or losing control of your business. You simply close the business and end it. If you like, you can decide to resuscitate it again some other time.

Most of the time, business owners liquidate their assets because of huge debts. In such cases, the proceeds from the sales of assets are used for settling debts, and the remainder ( if there’s any ) would be taken by you or divided among your shareholders. Liquidating your business may usually include selling your office building, office furniture and electronics, company cars, and other assets. Usually, you would sell at market price, and you may not make much profit.

5. Management buyout

If you built a business that you want to continue even after you are gone, you can consider turning to your employees. That’s right—not only will they have a good idea of how things are run already, but they will have intimate knowledge regarding company culture, corporate goals, and a pre-existing determination to make it work. This form of exit strategy is a good idea if you are someone who really wants to keep his or her legacy alive.

There is still an option of giving the business to your family members, but this has some disadvantages. For instance, the family members who inherit the business may not understand the business, have no interest to do the needful in order to ensure that the business survives or they could even descend into bitter rivalry over who gets what at the detriment of the business.

6. Family succession

If you family members are quite knowledgeable about your business, then they may be the best people to pass it to. If you would like to pass on your business to your children or any other family member, you should make sure that they have the prerequisite skills, are competent and have the success and future of the business at heart. This will make it a lot easier to retire.

Having reviewed the various exit strategies that are available to business owners, here is how you can write a business plan exit strategy.

How to Write a Business Plan Exit Strategy

A. detail your most likely exit strategy.

Firstly, you have to write in details your most likely or preferred exit strategy. Will you like to go public, sell it to another company, sell it to your employees or just liquidate it. Take some time to review the various options that are at your disposal and document your preferred choice.

b. Prove Your Exit Strategy

This step is very important, and it involves justifying the exit strategy you choose. For instance, if your exit strategy is to go public, then show other companies in similar markets or positions that have successfully gone public in the last three to five years. Research and find out the names of those companies, the dates they went public and the returns their investors received.

In the same vein, if the exit strategy you think is right for your business is to sell it off, you should make a list of potential buyers. Discuss not only who they are and their current financial positions (e.g., estimated total revenues if a private company), but the reasons they’d want to purchase a company like yours. You should also show other companies these firms have acquired in the past and at what price points.

Finally, as much as possible, show other companies that were similar to yours that were recently acquired. As much as possible, determine the sale price of these companies and the returns their investors might have received upon their acquisitions.

Even if you don’t plan to sell your business in the future, keep in mind that circumstances may force you to do just that. And you will end up badly burned if you end up doing it the wrong way. So, choose the most appropriate exit strategy for your business and structure it carefully. This way, even if you lose your business later, you will lose gladly.

As you can see, writing a business plan is no easy task. But after having read this eBook, you should now understand that it is well worth the effort. Aside that it better prepares you to deal with some of the shortfalls any entrant into a new market will experience, a business plan gives you a leg up on your competition through better research and insights gained from the process.

If you follow each step as outlined in this eBook, you will be able to come up with a business plan that will market your idea to investors / lenders in the best way.

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Exit Strategy

It is an undeniable truth that risk is consistent in a company and its ventures. Whatever business it is, there is always a chance that it will not fulfill its goals. That’s why Exit Strategies are necessary. This strategy ensures that there is a place for you to bounce back. That your failures can become learnings instead. However, if you’re a new businessman and find yourself lost in creating your Exit Strategy. You’ve come to the right place. We can assure you that you can craft the most exceptional exit strategy using our ready-made samples and thorough guide below. Check them out.

10+ Exit Strategy Examples

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What is an Exit Strategy?

An exit strategy is a strategy that a business founder plans when certain conditions happen within the company. In this way, the founder can still provide him or herself a leeway when unwanted situations surface.

What are some exit strategies?

The art of commerce has been around since then. The economy became an aspect of governance that dictates the rise and fall of nations. Nonetheless, it is necessary for business individuals to always have a margin when things don’t go right. So listed below are some of the strategies that people can use.

Management Buyout

Management Buyout happens when a business or corporation’s executives combine their assets to acquire the whole or part of the business. In this way, they will be fully responsible for their investments and fight hard to keep the company afloat.

Outside Sale

As the name suggests, Outside Sale or private equity is about selling part or the whole company to an unaffiliated group or individuals. In this way, the company’s shares are not open for the public, but only to a few individuals.

Initial Public Offering

The IPO is a type of exit strategy that does not provide you with immediate liquidity. However, your profits will be better in the long run. This is the strategy that allows outside investors to your company. Although they can only buy limited stocks, you still have more influence within the company.

Transfer to Family

According to  CNBC , at least 16 percent of company owners expect to pass on their work to their families, which could also be you. If you think that what you created is better for your family , then you can do this strategy.

How to Create an Exit Strategy?

Whether you are a startup with venture capital for an ambitious endeavor or an old merchant past his prime, one thing is certain. You need an exit strategy. In this way, you can still be sure that you have a roof above your head, whatever happens. If you’re here to learn how to create an Exit Strategy, we provided you with excellent tips that will surely help you win.

Step 1: Know Your Position

How much money do you have personally? How about the company? You should liquidate your finances before you start determining the type of exit plan you want to have. Not only will you save yourself for your exit, but you will also keep your influence within the company.

Step 2: Choose a Fitting Plan

Although there’s a lot of exit strategy in the market. People even sell strategy templates for them. However, it is your decision to choose the most appropriate plan. Do you go with succession or IPO? And if IPO, do you think you have the perfect pitch deck for investors and M&A?

Step 3: Meet Your Investors

If your company already has investors, you should make sure to meet them and inform them of your decision. Some of them may opt to liquidate their funds, and that could be depressing. However, they also, like you, have exit strategies.

Step 4: Tell The Team

The people you are wholly responsible for in the entire business is your team. This not only involves the management but also the regular employee. So make sure that you tell them, and you inform them of the change in the leadership . You should make sure that you already have new leadership before you do the meeting.

Step 5: Notify Your Costumers

If your business involves millions of customers, most of them wouldn’t really care or mind leadership change. However, for a company that produces limited products, your customer deserves a note. By doing this, you uplift your company’s professionalism in the market and keep the new administration’s customers.

Why are exit strategies important?

Exit strategies are important to ensure that there will be a smooth and peaceful transition within the company. It also ensures the continuity of the company as a whole. Lastly, it guarantees the previous leader’s reward for his success.

Is an IPO an exit strategy?

Yes. An IPO is an exit strategy as it allows the founder or the leader to leave the spot. In this way, the joint venture or project can keep on even with less input from the previous executive. An IPO also allows the business stocks to go public, which guarantee’s investment for any upgrades.

What is an exit plan?

An exit plan is the same as an exit strategy. Basically, you’re planning to leave the company to other people while ensuring that it will not have any slides in the transition.

With the rise of capitalist, the business world became invasive. However, it does not necessarily mean that they won’t allow themselves leeway when the going gets. In fact, it’s the opposite exit strategies are necessary to keep the market competitive. Whether you are looking at the real estate, transportation, beauty, and food industry, companies’ going and coming are necessary.

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