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How to Develop a Business Exit Strategy [+ Templates]

Written by: Idorenyin Uko

No matter how successful your business is, you should plan for the day you move on from the start. At some point, you’re going to either sell or retire and pass it on to a successor.

However, most owners need to be more knowledgeable when it comes to exiting their business. William Buck’s 2019 Exit Smart Survey Report shows that about 53% of entrepreneurs don’t actually have an exit strategy in place.

An exit strategy defines how you will exit your business, providing guidance on how to sell your company or handle financial losses if it fails. In addition, it gives you a clear direction on what steps to take to ensure a successful transition.

This article will take a deep dive into how to develop a business exit strategy for your company. We’ll also share customizable templates you can use along the way.

Table of Contents

What is a business exit strategy, benefits of an exit strategy, 8 templates to support your business exit strategy, types of exit strategies, how to develop a business exit strategy, when to use an exit strategy, business exit strategy faqs.

• An exit strategy for a business is a plan created by an investor or business owner to transfer ownership of the company or shares to another investor or company.
• Having an exit strategy helps you make better decisions, amplifies your ROI, makes your business attractive to investors and ensures smooth transitions.
• The main types of exit strategies are mergers & acquisitions (M&A), selling your stake to a partner or investor, family succession, acquihires, management and employee buyouts, leveraged buyouts, initial public offering (IPO), liquidation and bankruptcy.
• Follow these steps to develop a business exit strategy: determine when you want to leave, define what you want to achieve, identify potential buyers or successors, evaluate and increase the current value of your business and assemble the right team.
• Write an exit plan, create a communication plan, develop a contingency plan and build a data room.
• Visme provides templates for creating a robust business exit strategy , checklist, investor pitch, succession plan, press release, communication plan and more.

A business exit strategy is a strategic plan for a business owner, trader, investor or venture capitalist to sell their company or shares to another company or investor. Having a deliberate exit strategy helps owners generate maximum value from liquidating their assets.

In cases where the business is unsuccessful, an exit plan helps the owner reduce losses or transfer them to another party. A venture capitalist may also utilize an exit strategy to prepare for a cash-out of their investment.

Common exit strategies include initial public offering, mergers and acquisitions, liquidation, management or employee buyout and transfer to a successor.

Exit Strategy Options: Closing vs Selling

When weighing your exit options, you're going to have to choose between selling to a new owner or closing the business.

Selling to a new owner is a win-win. You'll make money while the buyer can start operations without a huge upfront investment. If there's a financing agreement, the buyer can spread the payment over a period of time. However, the downside of selling is that employees may be affected.

The second option is closing shop and selling assets as quickly as possible. While this method is simple and quicker, the proceeds only come from the sale of assets. These may include real estate, inventory and equipment. Also, if you have any creditors, the funds you generate must be paid to them before you can pay yourself.

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 Strategic Business Plans and Decisions: With an exit in mind, you will be more likely to set goals and make strategic decisions toward your expected business outcomes.
• Maximizing Your Return on Investment: When it comes to exiting, timing is key. Having a business plan exit strategy enables you to sell when market conditions are favorable, amplifying your ROI.
• Making Your Business More Attractive to Investors: Potential buyers value businesses with planned exit strategies because they demonstrate a commitment to long-term sustainability.
• Working Towards Business and Professional Goals: Executing an exit strategy that increases your business’s value and potential can prevent negative consequences of exiting, like bankruptcy.
• Revealing the Best Selling Situation: Planning your exit strategy requires an in-depth analysis of finances, market dynamics, competition and positioning. This helps you value your business and understand the best-selling situation.
• Ensuring a Smooth Transition: Exit strategies outline all roles and how they contribute to operations. With every employee and stakeholder informed about their responsibilities and actions, transitions are smooth and predictable. You can minimize disruption and maintain continuity during times of change.
• Implementing an Effective Succession Plan: For business owners, an exit strategy can be a part of company succession planning . This ensures a smooth transition of ownership or management. Be it to family members, existing partners, or external parties.

Executing a business exit strategy involves many moving parts. By using templates, you can effectively articulate your plan and ensure nothing slips through the cracks.

Keep in mind that you can tailor these to suit different industries, business sizes and exit goals.

Company Exit Strategy Presentation

When approaching investors or stakeholders to share your exit intent, you need a pitch deck. And we’re not just talking about “run-of-the-mill” decks. Use this orange-themed, captivating exit strategy template to wow investors and stir their excitement about the deal.

This presentation helps you explain what your business is about, how much you’ve grown, what you’ve achieved and the team behind the dream. It also paints a positive picture of the future. This business exit plan template utilizes charts, widgets and data visualizations to capture the timeline, traction and financing in an engaging way.

Do you have more evidence to support your presentation? You can link to your valuation, financial, legal and operations documents using Visme’s interactive features .

If you're racing against the clock and need to create your presentation quickly, use Visme's AI presentation maker . Input a detailed prompt, choose your preferred design and watch the tool produce your presentation in seconds. You also have the freedom to customize text and design with the extensive array of features and tools in Visme's editor.

Business Exits Checklist

Business exits (or even mergers and acquisitions) are complex. Without a checklist, you could miss out on some key steps. This business exit strategy checklist is a must-have if you want to increase your likelihood of success. It covers various aspects, from financial readiness and legal compliance to communication strategies and post-exit planning.

Think of it as a roadmap with essential steps and considerations to help you achieve a smooth and successful exit. Feel free to use it as is or customize it with the help of Visme’s intuitive editor. When working on this business exit plan template, you can change fonts, text and background colors to fit your branding.

Business Exit Strategy

Use this strategic plan template as a framework to guide you throughout the business exit journey. It captures all the key components of an exit strategy, helping you decide what’s best for your business.

Use it as a guide to navigate various aspects such as financial planning, market analysis and stakeholder communication.

Since multiple stakeholders are involved in the exit planning process, this exit strategy for business can serve as a collaborative tool. With Visme’s collaboration feature , team members can contribute to and review it individually or in real time. (Check out the video below to see how it works.)

The best part is that you can even deploy the Workflow tool for better task management among stakeholders. You can assign different sections, set deadlines, track progress and make corrections—all in one place.

Merger Press Release Templates

Announce your company's recent merger in a polished and professional manner using this blue-themed template. It features dynamic content blocks where you can easily place your text and visual elements.

The blue mixed with a yellow sprinkle makes your news visually appealing and engaging. Leave a lasting impression on your audience with visuals of your product or team members.

The best part of using Visme? You can generate content ideas or drafts for your press release using Visme’s AI Writer . The tool also comes in handy for proofreading your press release.

You can replicate or customize this merger press release for different channels using the Dynamic Fields feature .

Ownership Succession Plan

An ownership succession plan is critical for the success and stability of any business. Craft a well-structured plan for transferring ownership with this ownership succession plan template.

This customizable template addresses every aspect of the transfer process, like ownership structure, transition timeline and financial implications. It also captures an ownership checklist, a succession plan for retirement, a consideration sheet and a successor development plan.

Use this document to facilitate effective communication among stakeholders, including the owner, management, board of directors and employees.

Edit this template to align with your brand identity and maintain a smooth operational flow during the transition. Feel free to beautify the document with icons , stock photos and videos from Visme’s library. You also have the option of generating unique visuals with Visme’s AI image generator .

General Due Diligence Report

Give your business a huge advantage on the negotiation table with this general due diligence report template. Presenting a stunning report makes your business more attractive to potential buyers. It also eliminates surprises during negotiations and expedites the overall deal execution process.

This report presents a clear picture of the company's assets, liabilities, financial performance and growth prospects. It also captures information about your company’s legal and regulatory compliance, operations and team.

After publishing your report, you can monitor traffic and engagement with the Visme analytics tool . It provides insights into your report’s views, unique visits, average time, average completion and more. Monitoring how readers consume the report will help you steer your conversations in the right direction.

Financial Due Diligence Report

​​Instill confidence in potential buyers, investors and other stakeholders with this financial due diligence report. It paints a clear picture of your company’s financial health, controls and systems. This template covers key sections like the company overview, financial analysis, income statement, taxation analysis and recommendations.

The beautiful thing about creating this report in Visme is that you don't have to type in your financial figures manually. You can easily connect to third-party sources and import financial information into your report. As you make changes to your data, your table or chart will also be updated in real-time.

Download this template to share with your recipient in different formats, including PDF, HTML, video and image. Or simply generate a shareable link for online sharing. This means you can cater to different reading preferences–whether print or digital.

Legal Due Diligence Report

Establish compliance with all relevant laws and regulations associated with the transaction with this report template. It offers both the buyer and seller an extensive understanding of the exit process. This report captures key sections, such as:

• Legal and regulatory compliance
• Privacy and data sharing
• Terms of Service and Licensing
• Data retention

With this report, you can identify potential legal risks and liabilities. Not only does it ensure a smoother exit process, but it also helps you make better decisions.

Keep your report on brand with Visme’s brand wizard . Just input your URL; the tool will pull in your brand assets and recommend branded templates. You don't have to manually import them into the Visme editor.

Whether you're mapping out a business strategy or creating a plan for a business exit, we’ve created this ultimate list of strategic planning examples and templates to help you.

There are eight major examples of exit strategies for entrepreneurs, startups and established businesses.

Made with Visme Infographic Maker

 Ultimately, the strategy you select will depend on your own financial, personal and business goals. We’ll also touch on some of the pros and cons of each.

Merger and Acquisition (M&A)

This business exit strategy example involves merging with or selling your company (or a portion) to another company. The acquiring company may be a competitor, a supplier, a customer or a private equity firm. If you’ve built a strong brand, technology, or customer base, a Merger and acquisition exit strategy can provide an attractive exit option for your company.

• Creates economies of scale and increases efficiency by combining resources and capabilities.
• Enhances competitiveness and market position through expanded offerings and increased market share.
• Provides access to new markets, technologies and talent.
• Generates synergies and cost savings through combined operations.

Disadvantages

• Integration challenges and cultural differences can lead to significant difficulties in realizing expected benefits.
• High transaction costs and significant investment are required.
• Risk of overpaying for the acquired company or assets.
• Potential loss of focus on core business activities during integration.

Streamline your M&A exit strategy with the help of this customizable template. It captures every aspect of the transition process, including assessment, preparation, valuation and negotiation.

Exit Strategies for a Partner or Investor

Selling your stake to a partner or investor can be a strategic exit plan, particularly if you are not the sole business owner. In this shareholder exit strategy, you have the opportunity to sell your stake to a familiar entity, often referred to as a 'friendly buyer,' such as a trusted partner or a venture capital investor.

• Allows the business to continue operating smoothly with minimal disruption to daily activities, ensuring a consistent flow of revenue.
• A 'friendly buyer' already has a vested interest in the business and a commitment to its long-term success. This can contribute to the ongoing stability and growth of the company.
• Identifying a suitable buyer or investor for your share of the company can be a challenging task.
• When selling to someone with a close relationship, personal ties may influence negotiations. Hence, the process may not be as objective as with an external party.
• The close relationship with the buyer may make you lower the asking price.

Family Succession Exit Strategy

This exit strategy for a small business involves passing ownership and leadership of a business from one generation to the next within a family.

• Maintains the business's legacy and continuity with a sense of tradition.
• Successors often deeply understand the business because of their long-term affiliation.
• The successor’s familiarity with existing relationships, suppliers and customers can contribute to the business’s stability during the transition.
• Family dynamics can lead to conflicts of interest and an inability to make impartial business decisions.
• Successors may lack the necessary skills or experience to steer the business.
• Non-family employees may perceive favoritism or a lack of equal opportunities, causing dissatisfaction within the workforce.
• Narrow-mindedness within the family may hinder the introduction of new ideas and innovations.

Acquihires Exit Strategy

For this exit strategy in business, a larger company acquires a smaller company primarily for its talent and intellectual property. This allows acquiring companies to easily tap into the experience and expertise of skilled employees and innovative minds.

• Acquiring a team with a proven track record mitigates some of the risks associated with starting a new project or entering a new market.
• Provides a quick way for companies to onboard skilled and talented hires.
• The acquired team brings fresh perspectives, ideas and innovations to the acquiring company.
• Integrating a team already familiar with the industry can accelerate product development or market entry.
• Merging different cultures may lead to conflicts and clashes that affect team morale.
• Getting the acquired team acquainted with existing workflows and processes may present difficulties that impact productivity.
• Acquihires can be expensive and there's no guarantee you'll successfully integrate the new team.

Management and Employee Buyouts (MBO)

An MBO occurs when the company's management team purchases a majority stake from existing shareholders. This exit strategy in entrepreneurship allows managers to take control of the business and make decisions without external interference. MBOs can motivate employees, align interests and facilitate succession planning.

• Increased chance of success since the management team is already familiar with the company's operations, culture and challenges.
• MBOs can provide continuity in leadership, ensuring a smooth transition without significant disruptions to daily operations.
• Enable more agile decision-making processes for a smaller group of decision-makers.
• F​​unding an MBO can be expensive. The management team may face difficulties raising the necessary capital to acquire the company.
• MBOs may lack the financial resources and expertise that external investors or buyers could bring to the company.
• Insiders may have a biased view of the company's value and potential, leading to overvaluation and unrealistic expectations.

Here's a template you can use to manage the transition process for your MBO exit strategy. The presentation template covers key aspects such as employee roles and ownership, the board’s role, the process, transition planning and management.

Leveraged Buyout (LBO)

An LBO is similar to an MBO but involves borrowing funds, equity and cash to finance the purchase. The assets of the purchased and acquiring companies are used as collateral for the loans. Private equity firms often use this method to acquire companies with the potential for high returns through financial leverage.

• If the acquired company performs well, the return on the equity investment can be substantial.
• LBOs allow investors to control a larger enterprise with less initial investment.
• Private equity firms involved in LBOs often bring operational expertise and efficiency.
• Private equity ownership supports strategic decision-making since the ownership structure is often less bureaucratic.
• If the acquired company's performance declines or interest rates rise, the debt burden increases.
• Capital structure of LBOs may limit the company's ability to generate cash for other purposes.
• LBOs are influenced by market conditions and economic downturns can impact profitable investment exits.

Create a robust strategy plan for your leveraged buyout exit strategy using this template.

Initial Public Offering (IPO)

An IPO exit strategy is when a privately held company goes public by issuing stocks to raise capital. This provides an opportunity for early investors and shareholders to cash out their shares and realize a return on their investment. However, going public also means increased scrutiny, regulation and pressure to perform well.

• Provides liquidity for existing shareholders, including founders and early investors.
• Enhances the company's public profile and can attract new investors.
• Preparing and executing an IPO can be an expensive and time-consuming process.
• The company becomes subject to rigorous regulatory requirements and market fluctuations.

Considering how challenging executing an IPO is, this template is your trusted ally. The green fashion-themed design makes it visually appealing. The pictures bring more context to the company’s products or offerings. This strategy plan accounts for every single aspect of a successful exit via IPO, including objectives, the preparation phase, timing, IPO execution and post IPO.

Liquidation

Liquidation exit strategy involves winding down operations, selling off assets and distributing proceeds to shareholders. This option is usually considered when a company is no longer viable or has reached the end of its life cycle.

• Compared to other exit strategies, liquidation is a simpler process.
• Proceeds from liquidation can be used to settle outstanding debts, liabilities and other financial obligations.
• Allows you to sell and realize value from individual assets rather than the entire business.
• Often results in lower returns for shareholders compared to selling the business as a going concern.
• The liquidation process, especially if it involves bankruptcy, can damage the reputation of the business and its stakeholders.
• Assets can be sold below fair market value due to urgency.

Bankruptcy is a legal process where a company unable to pay its debts seeks protection from creditors. Depending on the circumstances, it can result in restructuring, refinancing or liquidation. While not always ideal, bankruptcy can provide relief and allow for a fresh start.

• Provides a legal process for discharging or restructuring debts.
• Triggers an automatic stay and offers legal protection from creditors.
• Facilitates the orderly liquidation of assets. This ensures creditors get fair treatment and maximizes the value of assets for distribution.
• Has a severe impact on the credit ratings of both the company and its owners.
• The court takes control of the company's assets and may appoint a trustee to oversee the process.
• Proceedings involve legal and administrative costs that can further erode the company's assets.
• Often results in job losses and career disruptions for employees.

1. Determine When You Want to Leave

The first thing you should do when doing business exit planning is figure out how long you want to stay involved.

If it’s a voluntary exit, you can approach it in two ways. You can list goals that should be achieved before you exit or pick a date in the future and work towards it.

For example, you can decide to sell after hitting a certain milestone in revenue, profitability, growth, or liquidity. You can also determine whether you’ll proceed with the sale even if you don’t hit those targets.

The target date for this transition can change. But without a deadline, you won’t treat the plan with priority or commit resources to achieving it. Once you have a date, you can work toward making your business more valuable and attractive to potential buyers.

2. Define What You Want to Achieve

Ask yourself what you want to achieve from your exit strategy. These could be financial goals, legacy preservation or pursuing new opportunities.

Do you want to retire or will you pursue other opportunities? Do you still want to maintain control over the business? Are you hoping to preserve your legacy?

If you’re exiting a long-term business, succession planning or management buyouts may be your best bet. But if you’re looking to cash out or explore synergies, you can sell, merge or even launch an IPO.

3. Identify Potential Buyers or Successors

The potential buyer for your business will depend on your industry, financial performance, strategic fit, market position and other factors.

Create a profile of the type of investor that may be interested in acquiring your business.

For example, your buyer may be a bigger competitor or venture capital fund that can maximize value from your business model. It could also be a rival company that finds your new product line perfect for cross-sells. You may also be approached by rivals who want your intellectual property, staff or customer base.

The next step is to list businesses that fall into this category. If you're looking to sell your business, consider potential buyers who have expressed interest in your industry or have a track record of acquiring similar companies.

However, if you plan to pass your business down to family members, identify suitable candidates within your family who have the necessary skills and experience to run the business successfully.

4. Evaluate the Current Value of Your Business

The next step is to determine what your business is actually worth. This may involve a business valuation, considering factors like revenue, profits, assets, market position and growth potential.

We recommend hiring external auditing companies or professionals to value your business and conduct due diligence. Not only will you get a due diligence report , but you'll also get a transparent and impartial valuation of your finances.​​

Understanding your business's worth will help you set expectations for buyers and negotiate a fair deal.

In addition to valuing your business, do your due diligence. Organize all of your company and legal documents, including:

• Permits/licenses
• Employee data and payroll information
• Vendor and customer contracts
• Asset lists
• Insurance information
• Liabilities
• IP documentation

5. Increase Business Value and Improve Performance

Now that you know the value of your business, what's next?

Ask yourself: Does it align with the exit strategy goals? Can I achieve my exit strategy goals with this current valuation? What can I do to increase the value of the business or make it more appealing to investors?

Keep finding areas for improvement across your business. This could involve expanding your product or service offerings, entering new markets or implementing new technologies.

Focus more on areas that will make other businesses want to acquire or merge with you. If you haven’t found those value drivers yet, it’s about time you did. Similarly, figure out the biggest drawbacks and fix them.

For example, if you have a strong financial track record, consistent profitability and positive growth trends, you’re likely to attract potential buyers. Your proprietary technology, patents, intellectual property, customer base, supplier relationship and geographic presence may just be the reasons other companies find your business valuable.

Another great practice to increase value is to do a competitor analysis. Analyze the competitors in your market. Where are they doing better than you? How can you beat them in their game? Acting on this intel can increase your chances of finding a suitable buyer and negotiating a favorable deal.

6. Assemble a Solid Team to Manage the Process

Buyers will come to the negotiation table with a solid team. You should assemble a great team as well.

You should also do this if you’re creating an exit strategy for startups.

When it comes to selling your business or liquidating shares, you’ll need professional guidance to navigate the complexities and emerge with confidence. The key is to surround yourself with trustworthy individuals who understand the intricacies of selling.

These professionals should have a proven track record and a wealth of knowledge to handle various situations associated with exits. Some professionals you should consider adding to your team include:

• Accountants
• Business brokers
• Corporate lawyers
• Merger and acquisition advisors
• Financial experts
• Marketing experts
• Information and communication experts

7. Write an Exit Plan

Establish a succession plan that outlines how you’ll ensure business continuity. This should outline how leadership will be transferred, including a clear chain of command, roles and responsibilities and a timeline for the transition.

Once you’ve decided to exit your business, gradually remove yourself. If operations, revenues and survival are 100% tied to the owner, that becomes a red flag for buyers.

Choose new leadership and start transferring some of your responsibilities to them while you finalize your plans. Establish a set of standard operating procedures (SOPs), ideally in written form, that would enable any buyer to keep the business in gear by following a set of instructions.

If you already have a documented operation strategy, transitioning new responsibilities to others will become seamless.

Ultimately, your business exit plan should capture these elements:

• Valuation of the business
• Timeline for your exit
• Financial preparedness
• The most suitable exit strategy
• General due diligence report
• Post exit involvement (consultancy roles, advisory positions, or other forms of ongoing involvement)

We've shared dozens of business exit plan templates. Alternatively, you can create one in minutes using our AI document generator . 

8. Create a Communication Plan

Plan how and when you will communicate the exit to customers, employees and other stakeholders.

Create a communication plan to manage this process. It can minimize disruptions and maintain the confidence of key stakeholders.

Once you have established a solid succession plan, communicate this information to your employees. Be prepared to address any concerns or questions they may have. Notably, approach this communication with empathy and transparency so your employees feel heard and valued throughout the process.

Finally, inform your clients and customers. If your company will continue with a new owner, make the transition smooth by introducing them to your clients. However, if you are shutting down your business, point your customers to alternative options.

Here’s a communication plan you can use for this step.

9. Develop a Contingency Plan

During the exit process, things could go south. For example, unexpected events—like market condition changes, delays or disputes with stakeholders—could impact the exit process.

That’s why you need a contingency plan to address these risks. Evaluate the potential impact and likelihood of each risk you’ve identified. Then, you can develop strategies to mitigate their effect.

Let’s say there’s a sudden change in market conditions. Your contingency plan could be to diversify your revenue streams or implement cost-cutting measures. Ensure the strategies are feasible, practical and aligned with the overall business goals.

10. Create a Data Room

The data room consolidates comprehensive information on financial results, key business drivers, legal affairs, organizational structure, contracts, information systems, insurance coverage, environmental matters and human resources issues such as employment agreements, benefits and pension plans.

As soon as the Confidential Information Memorandum (CIM) is drafted, start compiling information for the data room, as it supports much of the document.

It is important to balance the amount of information and the level of detail provided in the data room. The information should be sufficient to enable buyers to determine the asset's value and complete their due diligence.

However, it is equally important to limit the amount of sensitive or competitive information disclosed to anyone other than the ultimate purchaser. Achieving the right balance often requires discussions between sellers and their advisers.

There are different instances where you may need to use an exit strategy. Let’s look at a few of them.

• Retirement: If a business owner is approaching retirement age, an exit strategy can help them plan for the transfer of ownership or sale of the business.
• Profit Objective : An angel investor can sell their stakes and exit, achieving a specific profit objective.
• Mergers and Acquisitions: If a business owner receives an offer to purchase their business, an exit strategy can help them negotiate the terms of the sale and ensure a smooth transition.
• Financial Losses: An exit strategy is a great way to liquidate losses from a business with financial challenges or heavy debt burdens.

Other situations that can necessitate developing an exit strategy for startups and corporations include

• Change in personal circumstances such as a divorce, illness, or death in the family.
• Shift in business direction or industry changes.
• Lack of growth opportunities.
• Legal or regulatory issues.
• Planning for succession or transition to new leadership.
• Aligning with the investment horizon or expectations of investors or stakeholders.

Q. What Is the Best and Cleanest Way to Exit the Business?

The best exit strategy depends on your personal goals, financial needs and the specific circumstances of your business.

However, a clean exit can provide peace of mind and financial security. This type of exit involves a smooth transfer of ownership where you receive your payout and know your business will be left in capable hands.

With a clean exit, there’s little or no disruption to business operations. The owners maximize the value of their business and realize their financial goals.

Q. What is the Master Exit Strategy?

There isn't a single "master exit strategy" that universally applies to all businesses. Different businesses may benefit from different exit strategies. In addition, a small business exit strategy may not work for a larger company.

When exiting your business, deploy a strategy that helps you maximize your company's value and benefits all stakeholders.

Q. What Are the Two Essential Components of an Exit Strategy?

The two essential components of an exit strategy are:

A clear definition of the business owner's objectives: This includes identifying what the owner wants to achieve through the exit, such as maximum financial return, continued legacy, or minimal disruption to employees and customers.

A thorough assessment of the business's current situation: This includes evaluating the company's financial health, operational performance, market position and competitive landscape.

How Visme Can Equip Your Company & Team

There you go. This article has covered the basics of how to prepare an exit strategy.

Exiting a business you’ve built or invested in can be emotional and overwhelming. But doing it the right way pays off.

Planning a proper exit strategy in entrepreneurship requires diligence in terms of time and care. That’s why you need a tool like Visme that helps you manage the entire process—from planning to documentation to execution.

Visme provides templates for creating a robust business exit strategy , checklist, investor pitch, succession plan, press release and communication plan.

That’s just the tip of the iceberg regarding what you can create in Visme. With a rich library and cutting-edge features, teams can collaborate and create stunning business documents.

Sign up to discover how Visme can help you execute your business exit strategy.

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Exit Strategies

How to Craft an Exit Strategy for Investors

Staying informed about industry trends, learning from both successful and challenging exit stories, and continuously refining the presentation of exit strategies will empower founders to make informed decisions and navigate the path to success.

As founders aim to build successful and scalable companies, it's essential to consider exit strategies – a crucial aspect that plays into the risk-return dynamic VC firms evaluate. 

I. Understanding Exit Strategies

A. Defining the Exit

An exit strategy is a planned approach by which startup founders and investors intend to realize their investment returns. It's a crucial component of the business plan that outlines how investors will eventually liquidate their stake in the company, allowing them to capture the anticipated profits.

B. Common Exit Avenues

Acquisition : The startup is acquired by a larger company, providing investors with a return on their investment.

Initial Public Offering (IPO) : The startup goes public, and shares are traded on a stock exchange, allowing investors to sell their shares.

Merger : The startup merges with another company, creating a larger, more competitive entity.

Management Buyout (MBO) : The existing management team, possibly in collaboration with external investors, buys out the investors' stake.

Liquidation : In certain cases, the startup may choose to wind down its operations, and assets are sold off to repay investors.

II. Timing the Exit

A. Considerations for Timing

Market Maturity : Assess the maturity of the market and industry trends. Some markets may be more conducive to acquisitions or IPOs at specific times.

Company Growth Stage : The exit strategy often aligns with the company's growth stage. Early-stage startups might opt for acquisition, while more mature startups may consider an IPO.

Investor Expectations : Understand the expectations of investors regarding the timeline for an exit. Some investors prefer shorter-term exits, while others are more patient.

III. Aligning Exit Strategies with Business Goals

A. Strategic Alignment

Business Mission : Ensure that the chosen exit strategy aligns with the overall mission and goals of the startup. For instance, an acquisition may align better with certain strategic objectives than an IPO.

Impact on Innovation : Consider how the chosen exit strategy may impact the startup's ability to innovate. Some founders prioritize remaining independent to maintain a focus on innovation, while others see acquisition as an opportunity for greater resources.

IV. Factors Influencing Exit Strategy Selection

A. Financial Considerations

Investor Returns : Different exit strategies yield different returns for investors. Understand the financial implications for both founders and investors.

Valuation : Consider the current and potential future valuation of the startup. High valuation may make an IPO more attractive, while a strategic acquisition may be more feasible at a different valuation.

B. Market Dynamics

Competitive Landscape : Assess the competitive landscape and potential interest from larger players in the market. High demand for innovative solutions can make acquisition more likely.

Regulatory Environment : Understand the regulatory environment, especially if considering an IPO. Regulatory requirements can influence the feasibility and timing of going public.

V. Crafting a Presentation for Venture Capital Investors

A. Transparency and Communication

Open Dialogue : Establish open communication with investors about exit strategy considerations. Transparent discussions foster trust and alignment of expectations.

Regular Updates : Provide regular updates on the progress of the startup and any relevant industry developments that may impact the chosen exit strategy.

B. Tailoring the Presentation

Investor Preferences : Understand the preferences of your specific investors. Some VC firms may have a preference for certain exit strategies based on their investment thesis.

Scalability Narrative : Weave the chosen exit strategy into the broader narrative of the startup's scalability and potential market impact. Show how the exit strategy aligns with long-term growth.

C. Scenario Planning

Contingency Plans : Acknowledge the uncertainties in the startup landscape. Presenting various exit scenarios and associated plans demonstrates preparedness and strategic thinking.

Market Timing : Discuss how market conditions and timing may influence the chosen exit strategy. Highlight the flexibility to adapt to changing circumstances.

VI. Case Studies: Learning from Exit Strategies

A. Successful Exits

Instagram (Acquisition by Facebook) : Instagram's acquisition by Facebook for $1 billion in 2012 is a classic example of a successful exit. The strategic fit with Facebook's vision led to a substantial return for both founders and investors.

Alibaba (IPO) : Alibaba's IPO in 2014 is one of the largest in history. Going public allowed the company to access massive capital markets and facilitated continued growth.

B. Lessons from Challenges

Snap (IPO) : Snap's IPO faced challenges as the company struggled with monetization and faced intense competition from Facebook. The stock price volatility post-IPO highlighted the importance of a solid business model.

Theranos (Liquidation) : Theranos, once a highly valued startup, faced regulatory and legal challenges that led to its downfall. The liquidation of assets became the only viable exit option.

Crafting and presenting exit strategies to venture capital investors is a strategic process that requires careful consideration, transparency, and adaptability. Startup founders should view exit strategies not as an endpoint but as a critical part of the entrepreneurial journey. By aligning the chosen exit strategy with the company's mission, demonstrating financial acumen, and maintaining open communication with investors, founders can navigate the complexities of the funding landscape and position their startups for long-term success.

As the startup landscape evolves, so too will the expectations and preferences of venture capital investors. Staying informed about industry trends, learning from both successful and challenging exit stories, and continuously refining the presentation of exit strategies will empower founders to make informed decisions and navigate the path to success. 

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Business Exit Strategy

A plan for the transition of business ownership either to another company or investors

What is a Business Exit Strategy?

A business exit strategy is a plan for the transition of business ownership either to another company or investors. Even if an entrepreneur is enjoying good proceeds from his firm, there may come a time when he wants to leave and venture into something different.

When such time comes, the business can be sold, left in the hands of new management, or acquired by a larger company. Even if it will be decades before the entrepreneur can sell his business, what he does in the present moment can set it up for a smooth exit or make the process more challenging.

What Should Be Considered In An Exit Strategy?

While different businesses will require different tactics in an exit strategy, there are key elements that can be helpful across the board. These elements factor into play the company’s financial circumstances, market conditions , objectives, and timeline.

1. Objectives

One aspect that should never be missed in a business exit strategy is the owner’s individual goals. Upon exiting the business, is the owner interested in getting profits or does he also want to leave a legacy? Establishing the purpose of exiting the company helps to identify the specific objectives and activities to be prioritized.

2. Timeline

Another factor that should be considered is the time frame of the business. When does the owner intend to sell the business? When establishing this time frame, a business owner should allow for flexibility. In such a way, he will have more negotiating power.

However, if the time frame is tight, the business sale might not go through smoothly since everything will be done in a rush. Similarly, the stakeholders might not have enough time to make the business reach its full potential.

3. Intentions for the Business

Does the firm owner want to see his business continue its operations or does he prefer that it gets dissolved? Answering this question will help to establish whether the company will end up being liquidated, merged with another, or sold and set up for transition via succession planning.

4. Market Conditions

Both the current supply and demand for the company’s products or services, and the marketplace demand for businesses are also factors to consider. Are there a lot of potential buyers or only a few?

Why a Business Exit Strategy is Important

1. business owners become weary.

Forming a company from the ground up and transforming it into a successful and profitable one is challenging. It calls for a significant investment of time and money. Most of the time, entrepreneurs need to wear many hats before they can earn enough profits to invest in recruitment and training.

Considering the amount of effort that business owners put into these ventures, they are often unwilling to delegate tasks. These individuals invest all their time in running the business operations. They work round-the-clock looking for new clients, marketing their products, and recording the business finances. Since such company owners rarely take some time off to recharge, they can get to the point of fatigue or burnout.

Burnout can occur at any time and for several reasons. When it does happen, the firm owner will not want to spend another three months getting his business ready for sale. Prospective buyers prefer that the company owners have performance metrics, revenue history, and any other paperwork ready. A business exit strategy ensures that company managers have systems in place for recording essential information on a regular basis.

2. Get a better understanding of revenue streams

An exit plan requires that one keeps consistent and up-to-date data regarding the business’ performance. This means that company owners will always have a good understanding of their revenue streams and cash inflows and outflows. They are able to determine the activities that are bringing in the most revenue and how this revenue is being spent.

Having accurate financial data makes for better decision-making. It also helps firm owners to make realistic predictions. They will be able to manage cash flows more efficiently, plan for seasonal fluctuations, and focus their marketing efforts on the projects that matter.

Coming up with an exit strategy helps firm owners decide whether they should go after short, medium, or long-term income projects. If an individual intends to exit the business within the next few months, he can focus his efforts on activities that bring in cash quickly. These would include items such as monthly subscriptions, automatic renewals, and membership models that remain active up to when customers cancel them. Such income-generating projects require minimal effort, yet they keep money flowing into your business.

However, firm owners who want to remain in business for the next couple of years should focus their efforts on long-term growth activities. Developing life-long client relationships, building a reliable pool of employees, and being innovative will go a long way in helping the company grow.

3. Developing effective leadership

Whether a company owner intends to sell his business or pass it onto his next generation, effective leadership can make or break this deal. To ensure that the transition is a success, the firm owners should outline the chain of command that is to be followed upon exiting. This plan should also lay out the basics of company decision-making.

When a longtime manager or leader leaves, some firms end up in chaos with numerous stakeholders fighting for power. The players that are left waste so much time deciding who will take over that they forget the primary goals of the firm. By outlining a clear succession plan, firm owners help to minimize such risks and ensure that the business continues to thrive long after they leave.

4. Smooth operations

An exit plan highlights all the information that the company’s successor would need to run it. This way, the new investors or managers won’t waste their resources collecting basic information regarding employees’ salaries, finances, and partners. If the business exit strategy contains all the necessary information, its successors can hit the ground running as soon as the company leader leaves.

Key Takeaways

Entrepreneurs think of themselves as innovators. Their primary goal is to take ideas and turn them into successful ventures. This is beneficial; it’s what helps most firms survive and thrive. However, placing too much focus on the start of a business takes away focus from its end, which can be detrimental. A good number of entrepreneurs don’t have solid strategies in place for how they will exit the industry or company.

Exit plans are crucial in ensuring that firms transition smoothly to the new management. Having an exit strategy also makes it easy to keep tabs on the company’s finances. If an individual intends to sell his business later, he will have to present the firm’s revenue history and performance metrics to prospective buyers.

Also, a business exit strategy is important as it outlines the chain of command to be followed once a leader exits the company. This way, the new owners won’t spend too much time determining who will take over the managerial positions.

Additional Resources

CFI is the official provider of the global Financial Modeling & Valuation Analyst (FMVA)™ certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional CFI resources below will be useful:

• Corporate Structure
• Leadership Traits
• Management Theories
• Succession Planning
• See all valuation resources
• See all equities resources
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Exit Strategies - All You Need to Know about Business Exit Planning

Kison Patel is the Founder and CEO of DealRoom, a Chicago-based diligence management software that uses Agile principles to innovate and modernize the finance industry. As a former M&A advisor with over a decade of experience, Kison developed DealRoom after seeing first hand a number of deep-seated, industry-wide structural issues and inefficiencies.

The question, “What is your exit plan?” tends to draw blank expressions when asked to business owners.

A survey of business owners conducted by the Exit Planning Institute shows that a startling 2 out of 10 businesses that are listed for sale eventually close a transaction, and of these, around a half end up closing only after significant concessions have been made by the seller.

Business owners need to think about exit planning before searching for potential buyers. The tools provided by DealRoom can be a valuable asset to any business owner looking to develop an exit strategy.

By working with a team of professional advisors, accountants, lawyers, and brokers, you can ensure the right documents are in place for a business exit whenever the time comes.

In this article, we talk about creating a business exit plan and how to make one for your business.

What is a Business Exit Strategy?

A business exit strategy outlines the steps that a business owner needs to take to generate maximum value from selling their company. A well-designed business exit strategy should be flexible enough to allow for unforeseen contingencies and account for the fact that business owners don’t always decide on their own terms when to exit. By creating a strategy in advance, owners can ensure that they can at least maximize value in the event of an unplanned exit from the business.

Investor exit strategy

An investor exit strategy is similar to that of a business exit strategy. However, investors look for a financial return on their exit from a company, so bequeathing is never one of the options considered. An investor will often have a list of potential acquirers in mind, as well as a timeframe, as soon as their investment is made. In this type of scenario, there is often an exit multiple in mind (i.e. a multiple of EBITDA or a multiple of the original investment made in the business).

Venture capital exit strategy

Another business exit strategy option is a venture capital exit strategy. As our article on venture capital outlines, if a company is venture funded then consider that your investor will have a pre-planned exit. As an early stage company, this is a natural part of taking investments. Usually, with a VC investment, the aim is for an exit after five years, either through an industry sale or an IPO, where they can liquidate their original equity investment.

Motives for Developing Exit Strategies

Technically, it is important for equity owners to have a broad outline of what an exit would look like. For example, the image below represents various motives ranging from financial gain to mitigating environmental risk.

Some of the common motives for business exit include the following:

Retirement - Arguably the most common reason of all motives is retirement. Business owners will inevitably retire at some stage, and it’s best that they have an exit strategy in place before doing so.

Investment return - A business exit strategy as part of a wider investment strategy - for example, the VC company planning to go to IPO after five years - makes the exit valuation part a component of the initial investment in the business.

Loss limit -A business exit is ultimately a kind of real option for a business. If the business is hemorrhaging money, the best option may be to exit immediately - ‘cutting your losses’ on the business, a sit was.

Force majeure - Like the examples of Covid-19 and Russia’s invasion of Ukraine, sometimes an investor or owner doesn’t really have a choice: The circumstances dictate that they have to exit.

Types of Exit Strategies

Sale to a strategic buyer

Strategic buyers are usually in the same industry as the company whose owner is looking to exit. And in other cases, the buyer can be in an adjacent market looking to compliment their products in an existing market, or expansion of their products into a market.

Sale to a financial buyer

Financial buyers are solely looking for a financial return from their investment in a business and the exit is the primary means of achieving this return. Examples include venture capital and private equity investors.

Initial Public Offering (IPO)

This form of exit, far more common with startups than mature companies, enables company owners to exit by selling their equity to investors in public equity markets.

Management buyout (MBO)

An exit through MBO would occur when the owner sells the company to its current management team, whose familiarity with the business technically should make them the best candidates to achieve value from an acquisition.

Leveraged buyout (LBO)

A leveraged buyout occurs when a buyer takes a loan or debt to purchase another company. The buyer also uses a combination of their assets and the acquired company's assets as collateral. Financial models can be used for multiple scenarios and simulations of when an LBO is an effective choice.

Liquidation

Liquidation can be used by a business owner to exit if they feel like the liquidation would yield cash faster or that the individual assets (i.e. property, plant, and equipment) of the business were more liquid than the business as a going entity.

Exit Strategy for Startups

Startups looking for VC investment can include an exit strategy as part of their initial pitch. It is not mandatory. Sometimes this can work when well, for example, when a startup founder is well versed in the industry and has a credible 5-year forecast.

Startup exit strategies depend on a few different factors:

Market timing

How have IPOs for startups performed in the past 12-18 months? If public markets are showing enthusiasm for companies like the one being pitched, it makes it easier to show how an exit can occur.

Comparable transactions

Similar to IPOs, companies can use comparable transactions (industry or private equity sales) to show investors their route to an exit. The comparable firms should be operating in the same or close to the same competitive space.

How to Put Together a Business Exit Plan

Remember that the purpose of the plan is to make the new business owner transition as straightforward as possible.

Although the steps which follow are general, nobody knows a business better than its owner, so take whatever steps are necessary to make your business as marketable to potential buyers as possible.

These steps also assume that you, the owner of a business, have weighed up the options elsewhere. Personal finances, family situations, and other career options are beyond the scope of this article.

Rather, the intention of the points below is to ensure that a business will be ready to sell in the fastest possible time at a fair price.

Business exit plan

• Know the business
• Ensure that finances are in order
• Pay off creditors
• Remove yourself from the business
• Create a set of standard operating procedures
• Establish (and train) the management team
• Draw up a list of potential buyers

1. Know the business

This sounds obvious but a business can lose focus quickly in the aim of diversification, to the extent that it becomes ‘everything to every man.’

This may be useful in the short-term for revenue streams, but just be sure that your business has focus. It will help you find the right buyers when the time comes and to be able to communicate which part of the market your business occupies.

2. Ensure that finances are in order

This should be a priority regardless of any future business plans.

But if you intend to sell your business at short notice, it's best to have a clean, well-maintained set of financial statements going back at least three years.

3. Pay off creditors

The less debt that a business holds on its balance sheet, the more attractive it will be to potential buyers.

A common theme among small business owners in the US is thousands of dollars of credit card debt. This can be a red flag to many buyers and should be paid off as soon as possible.

4. Remove yourself from the business

How important are you to the day-to-day operations? If your business would lose more than 10% of its revenue were you to leave, the answer is “too important.”

If revenues are tied to the owner, buyers are not going to want to buy the business if the owner is going to leave right after.

Although it can be a challenge, seek to minimize your direct impact on the business, in turn making it more marketable.

5. Create a set of standard operating procedures

Closely related to the above point, ensure that your business has a set of standard operating procedures (SOPs), ideally in written form, that would allow any owner to maintain the business in working order merely by following a set of instructions.

6. Establish (and train) the management team

Are the existing managers capable of taking over the business and running it as is? If you leave the business for a vacation and one of your managers calls you several times, the answer to this question may be ‘no’.

They may need more training, or you may need a different set of managers. In either case, having a capable team in place will be valuable whether you decide to exit your business or not.

7. Draw up a list of potential buyers

A list of buyers should be made and refreshed on a reasonably regular basis. Ideally, you would know their criteria for buying a business, but this is not always practical.

Keeping a long list of buyers means that you can reach out to them at short notice if it is  required at some point in the future.

This list is likely to include at least some of your managers or suppliers.

Importance of Exit Strategy

Many owners make the mistake of thinking that a business exit plan means the same thing as a ‘retirement plan’, believing that they can start thinking about putting one together as soon as they hit 55 years of age.

This is an error. Not because your departure is impending, but because it doesn’t give you the flexibility.

Instead of looking at a business exit plan as a retirement plan, rethink it as a divestment option.

An alternative way of thinking about this is, what happens to the business owner that doesn’t have an exit strategy? Think of the value destruction that occurs to the business if something unexpected happens and the owner has to make an unplanned sale, at a discount, in unattractive market circumstances, or even at a time of personal loss.

Instead of thinking about the business exit as something that will happen in the future, rethink it as something that could happen at any moment.

Exercising critical thinking to write a business exit strategy can be exciting as well as enlightening. Thinking of an exit as an end state is not the best approach since this limits businesses to a strict definition. Rather, consider how the process can be supportive of a business' growth strategy. Take these top three considerations:

• Financial considerations: If the exit strategy has a target revenue number in 5 years then how will the business get there? What financial dashboards are needed to properly run the company? How will expenses be managed so a business does not outspend against earnings?
• Supply chain considerations: What products will need to be in your catalog to maximize margins? What inventory turns ratio are you aiming for on a monthly basis?
• People considerations: Who do I hire to grow the company exponentially? What benefits do I offer to attract the best talent but don't cause complications at the exit? How do I write the force majeure so I protect the company and employees?

A business's primary goal is long-term value generation to its customers, itself, and its stakeholders. Having a thoughtful exit strategy shows the maturity of a business's Leadership towards longevity and value creation. There are many facets of the journey from owner motivation to financial strategies.

At DealRoom we help the owners of businesses of all sizes prepare for this eventuality. Our Professional Services team is ready to help businesses think through these details. It is important that an exit strategy be a journey throughout the growth stages.

Talk to us about how our tools can be an asset for you in your exit plan.

Get your M&A process in order. Use DealRoom as a single source of truth and align your team.

• Business exit strategies

What is an exit strategy in business?

Types of exit strategies, acquisition, liquidations, how to plan a successful exit, organize your financial statements, due diligence preparation, communicate with investors and stakeholders, communicate with employees and customers, secondary transactions before an exit.

The founder journey doesn’t stop after you’ve launched your startup and raised multiple rounds of venture capital. Whether your sights are set on exiting through an acquisition, merger, initial public offering (IPO), or another path, having an exit strategy in place early on can help guide your startup to success well before you ring the opening bell at NYSE or sign the final paperwork for a big merger. 

An exit strategy is a business plan that outlines how and when a founder, CEO, investor, or other stakeholder will liquidate a company. There are several types of liquidity events you may plan for, including: 

Public offerings

Acquisitions

Below is a basic overview of the most common exit strategies available for private companies. We recommend consulting with your startup lawyer or other advisor to help comb through the different options—and to help you weigh potential buyers.

Going public via an IPO is the ultimate dream for most entrepreneurs and business owners. But a traditional IPO isn’t for everyone—and in fact, most private companies don't exit through an IPO. A company can also list its shares publicly through a direct public offering or a SPAC (special purpose acquisition company) .

Depending on your goals, such as price-per-share, avoiding lock up periods, or keeping a set business valuation, one type of public offering will be more beneficial. 

→ To learn more about the differences between traditional IPOs, direct listings, and SPA, read our IPO Readiness Guide . 

Want to download a free IPO readiness checklist to maximize your chances of a successful public offering?

Download your free IPO Readiness Checklist here:

A merger is when two or more companies combine to become one (they might adopt a new name in the process). In a reverse triangular merger (the most common merger structure), the buyer forms a new subsidiary that merges with the target company, resulting in the target becoming a subsidiary of the buyer.

The biggest prep work needed for an acquisition is determining the deal structure. There are two common structures for acquisitions:

Stock sale: This happens when the target company’s stockholders sell their stock to the buyer, such that the target company becomes a wholly owned subsidiary of the buyer. In some cases, a stock sale could involve the buyer absorbing the target so the target ceases to become a distinct entity.

Asset sale: This happens when the target company sells all or most of its assets to the buyer, then dissolves and pays the proceeds of the sale to the stockholders in the company's wind-down process. 

→ Learn more about asset sales and stock sales

Private equity acquisition

Private equity buyers acquire business across the financing landscape— bootstrapped , venture capital backed, private equity backed, carveouts (public and private), among others.

Leveraged buyouts (LBO)  are the most common private equity investment strategy. In an LBO, the private equity firm acquires a majority stake in the company, using equity and debt . This capital typically buys out existing stakeholders, and goes on the company’s balance sheet to fund growth. The portfolio company is then responsible for paying back that debt and interest through cash resulting from the operational improvements made during the private equity firm’s ownership tenure.

Not all private equity firms use debt. Growth equity or growth buyout firms may fund transactions with minimal to no leverage, allowing the company to continue investing in growth.

Liquidation is a conversion of assets to cash or cash equivalents by selling to a consumer. This is typically an option if your business is insolvent and isn't able to pay its creditors. The liquidation process also can help with negotiating the debt down with those creditors as well as help to avoid filing for bankruptcy. When your business is liquidated, any remaining assets are paid to creditors and shareholders. Although not as common, liquidation can also be a voluntary option. 

Liquidation is also an alternative to (and in most instances, is easier than) attempting to sell your business. The sale of a business requires the buyer to purchase all assets, which can become a more difficult and complex sale.

Liquidation vs. dissolution 

Liquidation is part of the process of ending a business. However, if your business entity is an LLC or corporation , it will continue to exist after a liquidation and will still be subject to obligations such as annual filings and taxation requirements .

Dissolution is the process of terminating a legal business entity. When the business is dissolved, it will no longer have compliance obligations within the state in which it was incorporated or registered. 

Once you’ve determined which exit option is right for you, here are some general steps you can take to prepare. Carta can help support you during this process when it comes to deal modeling, due diligence, IPO preparation, liquidity solutions, and tax planning. 

Ahead of term sheet negotiations, it’s important to understand your company’s anticipated returns based on deal size and other factors so you can in turn understand your breakeven valuation. Settle any debts and address any other outstanding obligations.

You can prepare your company for an M&A deal by familiarizing yourself with what sorts of documents will be requested by the buyer and what happens during their due diligence. The due diligence process may involve sharing disclosures with potential buyers, additional financial audits and reporting, and negotiation conversations between management teams. Some due diligence processes take a couple of weeks, while others take months.

→ See an example of a M&A due diligence request list, provided by one of Carta’s partner law firms, and a leader in the M&A space, Goodwin.

Investor communications are always important, but especially leading up to an exit event. Your investors , board members , and other key stakeholders want to know how they’ll be paid out and what their expected ROI is. If you have employee owners, you may want to inform them at this time, ahead of customers.

Depending on the size and scope of your company, you may also want to share your exit plans with employees and customers ahead of time to ensure a smooth transition. This should only be done after due diligence, board approval, and other key steps are completed. 

Companies can run structured secondary transactions to allow for liquidity in their shares for their stockholders at any time, but there are strategic opportunities to do so—for example,  within 90 days of a primary funding round or when a cohort of early employees fully vest in their initial stock grants. If an exit is still far away, you may choose to use secondary transactions— like tender offers — as a tool to clean up your cap table by consolidating your stockholder base.

In addition, private secondary transactions can offer shareholders an opportunity to liquidate some or all of their shares while the company is still private. Liquidity can allow early investors to secure a return on their investment and can give employees the chance to cash in their equity compensation .

Related Content

How to Plan Your Exit Strategy

Candice Landau

8 min. read

Updated April 17, 2024

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.

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

A business exit strategy outlines the planned approach for an owner to transition out of a business

Matthew started his finance career working as an investment banking analyst for Falcon Capital Partners, a healthcare IT boutique, before moving on to  work for Raymond James  Financial, Inc in their specialty finance coverage group in Atlanta. Matthew then started in a role in corporate development at Babcock & Wilcox before moving to a corporate development associate role with Caesars Entertainment Corporation where he currently is. Matthew provides support to Caesars'  M&A  processes including evaluating inbound teasers/ CIMs  to identify possible acquisition targets, due diligence, constructing  financial models , corporate valuation, and interacting with potential acquisition targets.

Matthew has a Bachelor of Science in Accounting and Business Administration and a Bachelor of Arts in German from University of North Carolina.

What Is a Business Exit Strategy?

Top business exit strategies.

A Business Exit Strategy is a plan for how a business owner can smoothly leave or liquidate their investment in their company, especially as they approach retirement or encounter unexpected personal circumstances. Instead of shutting down a successful business, the goal is to ensure a smooth transition for the owner, employees, and customers.

Any successful business plan should have a strategy in place on how the owner can leave the company at the end of their career. Very rarely do business owners create & run successful companies for the entire operation to be shut down. Instead, most companies are made to outlive their creator and thrive in business. 

Usually, the owner decides to retire from the company. They may have spent much time, energy, and capital on the company and want to retire comfortably. Having an exit strategy can help ensure that their business is in good hands when they are stepping down.

Another reason could be due to a sudden change in personal circumstances. If the owner becomes ill, defunct, or moves away suddenly, both they and their firm will have comfort in knowing that they have prepared for a situation where there was an unexpected turn of events.

Key Takeaways

Business owners need to plan exit strategies ahead for smooth transitions and financial goals.

Choices include selling, merging, going public, family handover, and management buyouts.

Mergers offer market power and scale, but face integration issues and regulatory hurdles.

Going public provides capital and visibility but involves complexity, costs, and regulatory demands.

Family transfers and management buyouts ensure continuity, yet face challenges like dynamics and financial risks.

The choice of an exit strategy depends on various factors, including the nature of the company and the market it's in.

If the owner's company is in a high-growth industry, they could cash out easily through a sale or IPO, but if relatives manage it, then the owner may pass it down to one of them. 

Regardless of the method the owner chooses to leave the company, they should prepare to put systems in place in advance so the business can operate without its original owner. This article will cover some business exit strategies and some of their benefits & drawbacks.

#1 - Sale of Business

A business owner may decide to sell their business altogether for a profit. This is a very common and popular way many owners exit their companies. 

This allows them to retire or move on to other business ventures through a quick and easy cash-out.

There are three major ways in which a company sale can occur. 

• It can occur as a private sale, where the company is sold directly to another business owner or investor.
• It can be merged with another company to create a whole new business entity where the company’s business processes are synergized.
• Or the company can be outright bought by another one and act as a subsidiary of the other.

Liquidation is also considered a sale of a business. Still, we will look at that in a separate section of the article, as it normally occurs when a company incurs more debt than it can handle or is no longer profitable.

This is usually considered a long-term capital gain and is taxed accordingly by the IRS. However, all business owners may not prefer this. 

It also results in a loss of revenue stream if the company is private and the owner has no more ties to the company, which may also be unfavorable.

We will go into more detail on the three methods of cashing out of your business for a profit through a company sale and look at the benefits and drawbacks.

#2 - Private Sale

The owner may choose to sell the confidential business to another individual or group if that group is ready to buy.

There are several steps an owner should take to ensure a successful transaction:

1. Valuation

You need to have value for your business, which can be done with the help of a valuation expert who can analyze financials, assets, & liabilities to determine worth & set a sale price.

2. Preparation

Now, the company needs to be prepared for sale. It includes improving the business through equipment upgrades & marketing efforts. You should also have a comprehensive package of financial statements , market materials, and all other relevant information.

3. Find Buyers

The owner may speak with other owners & competitors in the industry. Then, the owner works with a broker to negotiate a price & terms for sale.

4. Due Diligence

The buyer will spend a couple of weeks to months conducting their due diligence on the business to ensure all presented information is accurate. They will assess the size, complexity, and business model before deciding. 

Finally, the sale can be closed after the buyer's due diligence. It involves signing a purchase agreement and transferring ownership to the buyer, which could be a single payment, continuous payment, or an earn-out.

Benefits and Drawbacks of Private Sale 

Some of the benefits and drawbacks are as follows:

The Pros are:

• Confidentiality : If your company relies heavily on company-customer loyalty, this is a way to keep the sale private. It can avoid feelings of uncertainty that may harm the business in public sales.
• Flexibility : If the business has unique or specialized assets, this can give the seller more control over the terms of the sale, so they get the best deal for their situation.
• Personalized Negotiations : The seller can negotiate directly with the buyer, creating personalized negotiations and greater control over the sale process.
• Lower Transaction Costs : Fewer parties are involved, so there are lower transaction costs.

The Cons  are:

• Limited Buyer Pool : These sales can have a limited pool of buyers, making it more difficult to find a buyer.
• Lack of Market Competition : There is less competition and, thus, no competitive bidding process, so the buyer faces less stress to pay a fair price for the seller’s business.
• Increased Risk : Private Sales can be riskier than public ones, as the buyer may not perform the same level of due diligence or have the financial resources as a larger company, which means the company may struggle to survive after the sale.
• Limited Exposure : Private sales may have less exposure for the business, which can be challenging for sellers trying to market the business and achieve the desired sale price. Ultimately, the decision to sell a business through a private sale will depend on the business circumstances and owner preferences. Therefore, it is essential to consider the potential pros & cons of each option & work with a trusted team of advisors to ensure a proper & successful transaction.

#3 - Merger

Another style of business sale is through a merger , where two or more companies combine their operations into one corporate entity. 

There are three ways a merger can occur:

1. Horizontal Merger

This merger occurs when two companies in the same industry & offer similar products/services merge, which increases the final entity company’s market share , reduces competition, and improves profitability via economies of scale .

2. Vertical Merger

Here, companies operating at different supply chain levels merge. For example, this could be a manufacturer merging with a retailer. It leads to greater control over the supply chain, const synergies, and more efficiency.

3. Conglomerate Merger

It occurs when two companies in completely different industries merge. And diversifies the revenue of the newly merged entity’s revenue stream and reduces the risk.

Mergers can occur in many different ways. Still, it normally occurs in a stock-for- stock exchange , where the owners of the selling company receive shares of stock in the merged company in exchange for their ownership stake in the selling company.

It also allows the owners to participate in the future success of the newly merged company. 

Pros and Cons of Merger

This method has many pros & cons and can be described as follows.

The  pros  are:

Combining operations can help the merged company increase market share & reduce competition.

• Market Power :  Combining operations can help the merged company increase market share & reduce competition.
• Economies of Scale:  Pooling resources can help the merged company achieve cost synergies & greater efficiency.
• Diversification:  Merging with another company in another industry or market can diversify revenue & reduce risk.
• Access to new markets:  Merging with a company with a strong presence in a new market or geographic region can help the merged company access new customers and growth opportunities.

On the other hand, the  cons  are:

• Integration Challenges: Mergers can be complicated to execute. In addition, there could be challenges in integration, cultures & systems.
• Costly: Mergers can be expensive, with legal fees, due diligence costs, and integration efforts.
• Cultural Differences: Mergers can be companies with varying cultures, values, and ways of doing business together, leading to potential conflicts and challenges.
• Regulatory concerns:  Mergers may face government blocks that could stop them from merging.
• Shareholder disagreement :  Shareholders could disagree over deal terms and/or the direction of the combined company.

Mergers can be risky and complicated and involve many integrational challenges. Therefore, it is important that a company holistically examines the potential risks and benefits of a merger before proceeding with one.

#4 - Acquisition

An acquisition occurs when a larger company purchases a smaller company. This option is mutually beneficial, as the buyer can access new products, services, or markets while the seller cashes out. There are two types of acquisitions:

1. Strategic Acquisitions

They are made by companies looking to expand into new markets or gain access to products or services. These are motivated by synergies between the companies by offering complementary products or services or accessing new distribution channels. These are done to integrate the companies to realize long-term benefits rather than the target company's assets.

2. Financial Acquisitions

It is made by companies looking at a company for its assets or financial advantage. These can be motivated by acquiring valuable intellectual property or patents or gaining access to a larger customer base.  These are done to maximize short-term financial gains, such as selling off the acquired company’s assets or leveraging the customer base.

Regardless of the type of acquisition, the process involves several steps:

Buyer conducts due diligence to evaluate the target company’s financials, operations & legal liabilities. They will also assess the benefits & risks of the acquisitions.

After Due diligence, the buyer will negotiate the terms of the acquisition, including purchase price, payment structure, and any contingencies or warranties.

Finally, the companies work together to integrate their operations and realize the benefits of the acquisition. It may involve restructuring or merging the acquired company with the buyer's existing operations.

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Advantages and Disadvantages of Acquisitions 

Here are some of the pros & cons of an acquisition:

The  Pros  are:

• Exit strategy:  Selling the business through acquisition can provide the owner with an efficient and straightforward exit strategy.
• High valuation:  Acquisitions often result in a higher business valuation than would be possible through other exit strategies.
• Synergies: The acquisition may result in synergies between the two businesses, improving profitability.

The Cons  are:

• Loss of control:  The seller will lose control over the business and may need to give up critical decision-making authority.
• Culture clash:  The seller may not mesh well with the acquiring company's culture, leading to conflicts and difficulties in integrating the two businesses.
• Legal liabilities:  The buyer may inherit legal liabilities or other risks associated with the target company.

For the business to be attractive to the buyer, all the company financials must be in order, regardless of how the sale occurs. This option may also include working with a broker or investment banker to market the business, find the buyers, negotiate the terms & price, and plan any contingencies.

The owner would also work with tax experts to minimize tax liabilities & protect their interests.

#5 - Going Public

​​Business owners may consider exiting their company through an IPO or initial public offering . Through the NYSE and NASDAQ , their now- public company can have their shares bought and sold by investors.

It's easy for a quickly growing company to raise lots of capital in a single transaction by attracting many investors. A couple of prerequisite actions happen before a company goes public. A quick rundown of these steps is as follows:

They work with an investment bank to create a prospectus, which provides information about the company’s business, financial performance , and management team. This gets filed with the SEC and made available to potential investors.

The company & investment bank begin a roadshow , where they present their company to potential investors. Then, the company’s management team meets with the investors to discuss the company’s business & answer questions.

The company sets a price for its shares based on demand. Then, they are sold to the public through an underwriter, usually the investment bank that helped make the prospectus. When the company goes public, the owner can sell off their shares to leave the business or decide to keep some and become a shareholder.

Benefits & Drawbacks of Going Public 

While this may seem like an excellent way to alleviate yourself from the effort of running the company and take the role of a shareholder, this method does have some benefits & drawbacks. 

• Access to Capital:  An IPO can provide a significant influx of capital to the company, which can be used to fund growth initiatives, repay debt, or make strategic acquisitions.
• Increased visibility and credibility:  Going public can bring more attention to the company, attracting customers, partners, and employees.
• Liquidity for shareholders:  Going public will give the shareholders a chance to realize a return on their investment in the company.
• Ability to use stock as currency :  Publicly traded stock can be used as currency for future acquisitions or mergers, which can help the company grow more quickly.
• Potential for higher valuations:  Public companies are valued higher than private ones, which can increase shareholder returns.

The  cons  are:

• Cost and complexity:  An IPO can be a complex and expensive process, requiring significant time and resources from the company's management team and advisors.
• Increased regulatory scrutiny:  Public companies are subject to strict reporting and disclosure requirements.
• Loss of control:  The founders & management team of the company will have less control over operations and strategic direction.
• Pressure to meet expectations:  Public companies must meet quarterly earnings expectations and provide regular updates to investors, which can be challenging and time-consuming.

Public firm shares are easily affected by ups and downs in the stock market. It can change stock prices to factors the company can't control, like economic changes, industry trends, and investor sentiment.

An initial public offering can quickly raise capital and exposure for growing companies. Still, it would be best to consider all the pros and cons of IPO as your business exit strategy.

#6 - Family-Owned

Another option includes passing the business down to family members. Many business owners try to do this, passing it as a gift or through a sale.

Several important tax implications must be considered if an owner decides to pass the business as a gift. The owner will need to file a gift tax return, so they need a valuation for the business. They also want to minimize this by using the annual gift tax or lifetime exclusion.

The owner could also sell the business at a fair market value through a:

• Stock purchase
• Traditional buy-sell agreement
• Family member

When passing the business on, it is important to consider that the family member taking it over has the skills & experience necessary to run the business successfully.  You may consider providing training or mentorship to the member or hiring a third-party consultant to help with the transaction.

Also, consider the impact this will have on family members not involved in the business, as there may be concerns regarding fairness & equal treatment that may disrupt family relationships. 

Pros and Cons of Family-Owned

Some pros and cons to consider when using this strategy are explained below.

The Pros  are: 

• Continuity:  One of the biggest advantages of passing the business on to family members is its continuity, which can help maintain the company's culture, values, and traditions.
• Smooth transition:  Passing the business on to family members can also provide a smoother transition than selling to an outside party. Relatives may already be familiar with the business operations & customers, which can minimize disruptions from management change.
• Financial benefits:  Depending on the circumstances, passing the business on to family members may also provide financial benefits. For example, if the business owner passes the business at a reduced price or as a gift, it can reduce the tax implications of the transfer.
• Personal satisfaction:  It can be rewarding to see the business continue to grow and thrive under the leadership of a family member, making passing the business to a family member can be personally satisfying and fulfilling.
• Family dynamics:  One of the biggest challenges of passing the business on to family members is the potential impact on family dynamics. This can include issues related to fairness, jealousy, and resentment among family members who are not involved in the business.
• Lack of experience:  The owner needs to ensure the relative who takes over the business has the right qualifications & skills to run the business and minimize the chance of them putting the company's future at risk.
• Limited market:  Another potential downside of passing the business on to family members is the limited market for the company. Relatives may not have the financial resources to take over the business and may limit the owner's options.
• Business performance:  The transition to a family member may impact the performance of the business. If the family member is less effective a leader than the previous owner, it can lead to decreased profits and reduced success for the company. It is a great way to keep a business under family leadership and ensure the company lives on for future generations. Still, handling it fairly, transparently, and successfully requires lots of planning.

#7 - Liquidation

What if the business at the time of the owner's exit is not profitable or capable of earning revenue?

It may result in company liquidation. The management sells all assets for cash to pay off creditors and outstanding debts, which includes inventory, equipment, & property. The proceeds of the sale of assets are distributed to creditors and shareholders according to a predetermined order of priority.

First, the assets and liabilities of the company need to be assessed. After they receive an appraisal value, a plan is made to sell them off via auctions, private sales, & negotiations with potential buyers.

After all the proceeds have been collected, the remaining debt is paid off in a predetermined order. This includes secured creditors, like banks and other lenders, then unsecured creditors, like suppliers and vendors. Finally, anything left is distributed to shareholders.

Advantages and Disadvantages of Liquidation

A liquidation is a good option for businesses that are not profitable or have too much debt to equity. However, stakeholders may prefer something other than this option as they get little to no return on their investments while employees lose their jobs. Other pros and cons include:

• Simplicity:  Liquidating is pretty straightforward, as you sell your assets to pay your liabilities. This is an easy and fast way to exit the business if you have few assets and creditors.
• Control:  By liquidating the business, the owner retains control over the process and can determine the order in which debts are paid off.
• Relief:  Liquidation can provide relief for business owners struggling with financial difficulties, simply wanting to retire, or wanting closure so they can pursue other ventures.

The Cons are:

• Limited Return:  In many cases, liquidation results in little or no return for shareholders, which can be frustrating for owners who invested significant time & capital into the business.
• Employee Displacement:  Liquidation often results in the business closing, which means employees lose their jobs. 
• Legal Costs:  Liquidation can be a complex legal process that requires the expertise of attorneys and other professionals and can be costly for an already struggling business or if a business has lots of assets.
• Reputation Damage:  The liquidation process can also damage the business's reputation, particularly if seen as a failure or a sign of financial instability. This can shake the confidence of investors in the owner's future ventures. Liquidation is a viable exit strategy for some businesses, but weighing the potential outcomes with financial and legal advisors before pursuing this option is important.

#8: Management Buyout

A management buyer ( MBO ) is an exit strategy where the current management team purchases the business from the owner.

MBO can help a business owner sell their company to someone they trust (or a group of people). It also gives them the satisfaction of knowing the company is in capable hands. In an MBO, the management team borrows funds from a bank or other lender to finance the purchase of the business from the owner. 

There are many pros and cons to this method:

The Pros  are

• Business Familiarity:  The managing team is familiar with the business operations, which can reduce the risk of disruptions.
• The incentive to Grow the Business:  The management team may have a stronger incentive to grow the business after taking ownership since they will now be owners. And can motivate them to be focused on driving the business forward.
• Confidentiality:  An MBO can be a good option for owners who want to maintain confidentiality during the sale process since the management team is already familiar with the business and can keep the sale private.

The  Cons  are

• Risk of Financial Strain:  The management team may lack the financial resources or expertise to run the business successfully. This could cause a drop in valuation for the business if it cannot leverage the financing method of choice.
• Limited Market:  The pool of potential buyers is smaller in an MBO, limiting the price the owner can receive for the business.
• Potential for Conflict:  The management team may struggle to agree on the purchase terms or work together effectively after taking ownership of the business, which can lead to conflict.
• Complexity and Time-Consuming:  An MBO can be complex and time-consuming. The management team must secure financing, negotiate terms with the owner, and manage the transition process. An MBO is a solid option for business owners to sell their business to trustworthy people who know how to run it. However, it is essential to consider the risks and benefits of an MBO carefully and to work with experienced advisors to navigate the sale process.

A business exit strategy outlines how the business owner will exit at the end of their career.

There are several common business exit strategies, including

• Selling to a strategic or financial buyer
• Transferring ownership to family members or employees
• Going public
• Liquidating the business

Every strategy comes with its own set of benefits and drawbacks, which can impact the exit timeline & financial goals of the owner and the health & value of the company.

Ideally, the business owner should plan their exit 3-5 years in advance to ensure they maximize the business and have a smooth transition. To make their exit strategy they should consider advice from:

• Business brokers
• Financial planners
• Accountants
• Tax specialists

They will guide various aspects of exiting the company, help fairly value the business, negotiate terms, and manage the  implications of tax  when the exit occurs.

Ultimately, a well-planned exit strategy can help business owners achieve their financial goals, have a smooth ownership transition, minimize risk & uncertainty, and secure a future long past the original owner's life.

It is a plan that explains the details of how the owner will exit the business.

It allows the owner to maximize & capitalize on the value of their business, ensure a smooth transfer of ownership, minimize risk & uncertainty with leaving a business, and ensure the business outlasts them.

Common strategies include Private Sale, Merger , Liquidation, Acquisition, Passing it on to a family member & going public.

Factors for consideration include your goals, business health & value, exit timeline & tax implications.

It's never too early to plan your exit strategy. Ideally, you should plan 3-5 years before exiting to ensure a smooth transition.

Business brokers, financial planners, accountants, and attorneys are all professionals that can help you when planning your exit strategy.

Yes, your strategy should account for timing, value, & structure. This may have consequences, so you should consult a professional to consider all the impacts before changing the strategy.

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Business exit strategy definition, types, and use cases

Table of content.

Having a thoughtful exit strategy shows that a business owner is prepared for the future and is focused on ensuring the long-term success and sustainability of their company. However, according to a survey conducted by the Business Enterprise Institute, only 20% of owners have created written plans to transfer ownership.

The article will offer insights to startup founders, small business owners, and established company leaders about the importance of developing an exit strategy, outlining key benefits and steps involved. 

What is a business exit strategy?

A business exit strategy outlines the steps a business owner needs to take to sell their ownership in a company to investors or another company and generate the maximum value.

There are several different exit strategies, including types like strategic acquisitions, an initial public offering (IPO), management buyouts (MBOs), liquidation, bankruptcy, selling a stake to a partner or investor, or passing the business on to a family member.

It’s recommended to develop an exit strategy early in the business planning process , ideally during the initial stages of forming the company. This is because this strategy can impact future business plans and influence key decisions regarding growth, investment, and operational strategies.

For instance, if the exit strategy business plan is to pass the business on to family members, the focus may be on creating stable day-to-day operations and a strong brand reputation. In contrast, if a business owner aims to sell their business within, say, five years, they may focus on rapid growth and building tangible assets to increase the company’s valuation.

In fact, one of the most important parts of every thoughtful exit strategy is business valuation , as it determines the company’s fair price. Understanding the current and potential future value of the business helps to make the right decisions regarding when and how to exit. 

It’s also important to note that business exit planning can include two subsets — investor and venture capital exit strategies:

• Investor exit strategy . This is a plan developed by investors, such as angel or private equity investors, to exit their investment in a particular company. The primary goal is to achieve a favorable return on investment by selling their stake in the company. A business exit strategy, in this case, should always be part of a wider investment strategy.
• Venture capital exit strategy . Another business exit strategy option can be applied to an early-stage company or high-growth business backed by venture capital funding. In this case, VC investors develop a pre-planned exit to achieve a return on their investment within a specific time frame, often around five years.

Benefits of a business exit strategy

Let’s explore why developing a business exit strategy is always a good idea.

1. Maximizing value

A well-defined exit strategy helps maximize the value of your business by focusing on growth, profitability, and building tangible assets. This, in turn, will lead to a higher sale price or better terms during a transition.

Example: WhatsApp, a messaging app, focused on user growth and engagement before its acquisition by Facebook for $19 billion in 2014. This strategic approach maximized the company’s value and resulted in a lucrative exit for its founders and investors.

2. Mitigating risks

An exit strategy allows business owners to mitigate potential risks associated with industry changes and unattractive market circumstances, protecting the value of their businesses.

Example: Tesla, the electric car manufacturer, diversified its product offerings and revenue streams beyond vehicles by venturing into energy storage and solar energy solutions . This diversification strategy helped mitigate risks associated with fluctuations in the automotive industry.

3. Facilitating succession planning

By outlining a clear exit plan, you can facilitate smooth succession planning and ensure a seamless transition of ownership or management, minimizing disruptions to operations.

Example : Walmart, a retail industry leader, demonstrated effective succession planning . When Sam Walton retired in 1988, his son, Rob Walton, became a chairman, prioritizing expansion and technological advancement. In 2015, Rob Walton smoothly transitioned leadership to his son-in-law, Greg Penner.

4. Enhancing investor confidence. Having a well-defined exit strategy increases investor confidence, as it demonstrates strategic planning and commitment to maximizing returns. This, in turn, facilitates fundraising and growth opportunities.

Example: Airbnb clearly outlined its potential exit strategies, including IPO. This transparency and strategic planning boosted investor confidence, leading to a successful IPO in 2020 .

What types of business exit strategies are available?

The selection of an appropriate exit strategy is influenced by a few different factors, such as the entrepreneur’s goals, market conditions, and the business growth strategy. Each strategy comes with its own set of advantages and disadvantages, making it crucial for company owners to carefully evaluate their options before making a decision.

Business exit strategy examples

Let’s also explore the most suitable exit strategy business plan examples for different company types:

• Startup exit strategies Startup exit strategies depend on factors such as the company’s growth trajectory, market conditions, investor preferences, and the founder’s long-term goals. The most common methods include an IPO, a strategic acquisition, or a management buyout.
• Small business exit strategy The best exit strategy for a small business always aligns with the owner’s financial objectives, long-term vision, and the company’s market position. Small business owners may opt for options like selling the business to a competitor, transitioning ownership to a family member, or pursuing a management buyout.
•  Larger company exit strategy The owners of established businesses may go for a combination of options tailored to maximize value. This may include a business sale to a strategic buyer, an IPO, or a management buyout.
• Family-owned business exit strategy Succession planning and management buyouts are common strategies for family-owned businesses to ensure a successful transition and preserve legacies.

8 most important steps to develop your exit strategy

A survey of business owners conducted by the Exit Planning Institute shows that just 20% of businesses put up for sale successfully find buyers. Among the businesses that manage to sell, 75% express significant regret within one year of leaving their business.

That’s why it’s so important to proactively develop an exit plan and facilitate the transition to a new business owner. Here are key steps to take:

• Setting exit timelines. Establish clear timelines for your exit strategy, outlining specific milestones and deadlines. Consider factors such as market conditions, personal goals, and financial targets to determine the optimal timing for your exit.
• Documenting information. To ensure a smooth and successful exit strategy, it’s important to maintain all important documents related to your business, including financial statements, financial strategies, contracts, employee information, organizational structure, and legal files.
• Identifying potential buyers. Conduct market research to identify potential buyers for your business. Develop detailed buyer personas to understand their motivations, preferences, and acquisition criteria. Tailor your exit strategy to attract and engage with these prospective buyers effectively.
• Building valuable assets . Focus on developing and enhancing valuable assets within your business, such as proprietary technology, intellectual property, and customer relationships. Invest in strategies that increase the overall attractiveness and value of your business to potential buyers.
• Improving business performance. Continuously monitor and improve key performance indicators (KPIs) across various aspects of your business, including revenue growth, profitability, operational efficiency, and market competitiveness. Implement strategies to optimize business operations and maximize financial performance to attract potential buyers.
• Chasing profitable growth. Explore new opportunities for revenue growth. For example, you can try to diversify product offerings, expand into new markets, or leverage emerging trends. It’s important to focus on generating new revenue streams and demonstrate the long-term growth potential of your business to potential buyers.
• Delegating responsibilities. Delegate key responsibilities to trusted employees, letting them learn to manage daily operations. Create a strong team able to sustain business continuity and growth, even in the owner’s absence.
• Saving financial resources. Keep some money saved to cover the costs associated with the exit process, including legal fees, transaction expenses, and the services of professional advisors. 

Key takeaways

Let’s summarize: 

• A business exit plan means a plan developed by a business owner or management team to exit or transition out of the business and generate the maximum value from it. 
• The most common types of exit strategies are strategic acquisitions, initial public offering (IPO), management buyouts (MBOs), liquidation, bankruptcy, selling a stake to a partner or investor, or passing the business on to a family member.
• The key benefits of developing a business exit strategy are maximizing value, mitigating risks, facilitating succession planning, and enhancing investor confidence. 
• Steps to take to create a business exit strategy include setting exit timelines, documenting information, identifying potential buyers, building valuable assets, improving business performance, chasing profitable growth, prioritizing customer loyalty, delegating responsibilities, and saving financial resources.

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Exit Planning Explained - Process, Strategy, and More

If you are a business owner, you may have wondered what will happen to your business when you decide to retire, sell, or transfer it.

How will you ensure you get the best value while exiting the business? How will you protect the interests of your family, employees, customers, and other stakeholders?

In this guide, we will explain the exit planning process, the different types of exit strategies, and the role of advisors in the exit planning process. We will also provide tips and best practices for creating and executing a successful exit plan.

You may also want to look at a few success stories from our past clients for some inspiration before you start reading.

What is Exit Planning?

Exit planning is the process of preparing for the eventual transfer or sale of a business while considering the owner's personal and financial goals. It involves implementing various decisions and actions that enable a smooth and organized exit.

Exit planning is not a one-time event but a dynamic process that adapts to the business owner's and business's changing needs and circumstances. It requires a clear vision, proper assessment, and a strategic approach.

What Are The Benefits of Exit Planning?

Exit planning can benefit the business seller in many ways, from safeguarding their interests to facilitating a smooth deal when the time comes.

By planning ahead, the owner can increase the attractiveness and profitability of the business and reduce the risks and liabilities that may lower the business's value . The owner can also optimize the timing and structure of the exit and take advantage of the tax incentives and exemptions that may apply.

Business owners can ensure that their personal and financial goals are aligned with the goals and vision of the business and that they have a clear and realistic roadmap for achieving them.

One can anticipate and mitigate the potential challenges and obstacles that may arise during the exit process, such as legal disputes, regulatory issues, and emotional stress. They can also prepare for the transition and the future by securing their income, assets, and lifestyle and exploring new opportunities.

The owner can ensure the continuity and stability of the business by developing and retaining key employees and managers and transferring the knowledge and skills essential for the new ownership's success.

One can achieve a sense of accomplishment by exiting the business on their terms and conditions. The owner can also enjoy a smooth, stress-free exit and a rewarding and satisfying future.

Whether you are planning to exit your business in the near or distant future, exit planning is a vital step you should consider.

TL;DR - Overview of the Exit Planning Process

Exit planning is the process of preparing for the eventual transfer or sale of a business. It can be a planned event or arise from a contingency where a business owner wants to change ownership for some reason.

Developing a good exit plan that covers factors like tax compliance and stakeholder share is crucial, and a good M&A advisor can help both parties build terms and negotiate a fair deal.

What Role Do Advisors Play in the Exit Planning Process?

Rightly known as Certified Exit Planning Advisors, these professionals can provide expert advice and guidance to the business owner during exit planning. They can help the owner with various aspects of the exit planning process, such as:

Assessing the current situation and identifying the objectives and preferences of the owner

Exploring and evaluating the different exit strategies and options

Developing and implementing a customized and comprehensive exit plan that meets the needs and expectations of the owner

Coordinating with other advisors and stakeholders involved in the exit process

Monitoring and adjusting the exit plan as needed to respond to changing circumstances and opportunities

Exit planning advisors often work with a team of other professional who help in the process, who may include:

Accountants: They can help the owner with the financial and tax aspects of the exit, such as valuing the business, structuring the deal, minimizing the taxes and fees, and preparing the financial statements and reports.

Lawyers: Lawyers can help the owner with the legal aspects of the exit, such as drafting and reviewing the contracts and agreements, protecting the intellectual property and confidential information, resolving disputes and claims, and complying with the laws and regulations.

Brokers: They help with the marketing and selling aspects of the exit, such as finding and qualifying the potential buyers, negotiating the terms and conditions, facilitating the due diligence and closing, and maximizing the price and value.

Bankers: Bankers can help the party with the financing and funding aspects of the exit, such as securing the loans and equity or arranging escrow.

Consultants: They can help the owner with the strategic and operational aspects of the exit, such as improving the business's performance and sustainability.

Advisors can play a vital role in the exit planning process, providing the owner with the knowledge, skills, and resources necessary for a successful and satisfying exit. The owner should pick suitable advisors, maintain control and responsibility over the exit planning process, and make the best decisions for themselves and their business.

Exitwise can help you find the right advisors for your exit planning and build the right M&A team for a successful team. Check out our detailed explanation of how our process works and how we can help create your dream M&A team.

5 Key Steps in Developing an Exit Plan

Developing an exit plan helps you achieve your personal and financial goals and ensure a smooth and successful exit from your business.

Here are five key steps that you should follow to create and execute an effective exit plan:

Step 1: Establish Your Objectives

Identify your reasons and motivations for exiting the business and your desired outcomes and benefits. Consider your personal, financial, and professional goals and your family, lifestyle, and succession preferences.

Step 2: Determine the Value of Your Business

Estimate your business's current and potential value based on various valuation methods and market factors. Identify your business's value drivers, detractors, and the opportunities and threats that may affect the value. You can use our business valuation calculator for an accessible overview of your business's current value.

Step 3: Choose Your Exit Strategy

Explore and evaluate the different exit strategies and options available, such as selling, merging, passing, or liquidating the business. Weigh the pros and cons of each option and select the one that best suits your objectives, situation, and market conditions.

Step 4: Develop Your Exit Plan

Create and implement a comprehensive and customized exit plan outlining the specific actions and initiatives needed to execute your chosen strategy. Include a contingency plan, a timeline, and a budget for prompt execution.

Step 5: Execute Your Exit Plan

Execute your exit plan with the help of an exit planning advisor to ensure maximum compliance and value. Monitor and adjust your exit plan to respond to changing circumstances and opportunities and ensure success and satisfaction.

8 Exit Planning Strategies Explained

Check out these different exit strategies, and you may get an idea of what best suits your business.

1. Employee Stock Ownership Plan (ESOP)

A strategy where the owner sells some or all of their shares to a trust set up for the benefit of the employees. The employees become the business owners, and the owner receives cash and tax benefits. This strategy can be used to reward and motivate the employees and preserve the business's culture and legacy.

2. Merger with Another Business

In this arrangement, the owner combines their business with another business with complementary or synergistic assets, capabilities, or markets. The owner receives shares or cash from the merged entity and may retain some control or influence over the business. This strategy can create value for both parties and increase the chances of success in the future.

3. Management Buyout (MBO)

MBO is a strategy where the owner sells their business to the existing management team, who may use debt or equity financing to fund the purchase. The owner receives cash and may retain some equity or involvement in the business. This strategy can be used to transfer the ownership to the people who know the business best and to ensure continuity and stability.

4. Initial Public Offering (IPO)

IPO is a strategy where the owner sells some or all of their shares to the public through a stock exchange. The owner receives cash and may retain some ownership or control over the business. IPO strategy can raise capital and enhance the business's reputation and visibility.

5. Selling to a Third Party

Here, the owner sells their business to an external buyer, an individual, a group, or a company. The owner receives cash and may negotiate the terms and conditions of the sale. This strategy can be used to maximize the business's price and value and exit the business quickly and thoroughly.

6. Family Succession

The business owner transfers the ownership or control of the business to their family members, who may be their children, siblings, or relatives. The owner may receive cash, shares, or other assets from the family and maintain some involvement or influence in the business. This strategy can be used to preserve the business's legacy and culture and maintain ownership in the family.

7. Recapitalization

It is a strategy where the owner restructures the business's capital structure by changing the mix of debt and equity. The owner may use the debt or equity issuance proceeds to pay themselves a dividend or reinvest in the business. This strategy can increase the return on equity and prepare the company for a future exit.

8. Liquidation

In liquidation, the owner sells the assets and liabilities of the business and distributes the proceeds to themselves and other stakeholders. The owner may receive cash or other assets and terminate business operations. This strategy can be used when the business is no longer viable or profitable or when the owner wants to retire or pursue other interests.

What Are the Tax Implications of Different Exit Strategies?

Disclaimer: The information provided here is for general guidance only and does not constitute professional tax advice. You must consult a local tax professional before making any final decisions regarding tax matters.

The tax implications of different exit strategies can vary depending on the structure of your business, the nature of your exit, and the applicable tax laws. Here are some common exit strategies and their tax considerations:

Selling the Business

Selling your business can lead to capital gains and regular income taxes. Depending on how long you've held the business, capital gains may be classified as short-term or long-term, each with its tax rate. Additionally, you might be subject to depreciation recapture taxes if you've claimed depreciation deductions on your business assets.

Passing the Business to Heirs

Succession planning involves passing on your business to family members or other heirs. While this strategy can potentially lead to estate taxes, the tax implications can be minimized through careful planning, including using trusts and gifting strategies.

Liquidating the business

Closing down your business involves liquidating its assets and settling its liabilities. This process can trigger capital gains, ordinary income taxes, and potential taxes on any accumulated earnings in the business.

Merging or Acquiring

Mergers and acquisitions can lead to a range of tax implications, including taxes on gains from the sale of assets or stock, changes in ownership structures, and potential changes in tax attributes like net operating losses.

Exit Planning Statistics

Let’s look at some exciting findings from recent surveys and reports on exit planning statistics:

According to the BEI 2022 Business Owner Survey , 16% of business owners plan to exit their businesses in fewer than five years, 37% plan to exit within 5–10 years, and 47% plan to exit in more than ten years. When asked how the COVID-19 pandemic impacted their plans to exit, more than 50% said it made no impact. Only 11% said it made them want to exit their business sooner.

The EPI 2023 State of Owner Readiness Research report says that 52% of business owners include written detailed personal planning in their exit strategy, compared to only 9% in previous surveys. This indicates that owners consider exit planning earlier in their ownership lifecycle and expect their advisors to support those efforts.

Data from the Gitnux 2024 Succession Planning Statistics estimates that only 30% of small businesses successfully sell, leaving 70% without a buyer or successful plan for what happens next. The report also suggests that owners with a formal succession plan are more likely to achieve higher business value, lower taxes, and greater personal satisfaction.

Frequently Asked Questions (FAQs)

This comprehensive FAQ section will guide you through the answers to some common questions about exit planning.

When Should an Owner Start the Exit Planning Process?

Owners may have different objectives, timelines, intentions, and market conditions for their exit. However, a general rule of thumb is to start the exit planning process at least 3 to 5 years before the desired exit date. It allows enough time to assess the current situation, explore the options, develop and implement the plan, and execute the exit strategy. Starting the exit planning process early also helps increase the business value and reduce the risks and uncertainties.

How Does Exit Planning Affect Business Valuation?

Exit planning can positively impact the business valuation, as it can motivate the ownership to improve the business's performance and sustainability and enhance its attractiveness and profitability for potential buyers or investors. Exit planning can also optimize the exit's timing and structure and take advantage of the tax incentives and exemptions that may apply.

Can Exit Planning Help in Reducing Business Risks?

Exit planning can help reduce business risks, as it can help anticipate and mitigate the potential challenges that may arise during the exit process, such as legal and regulatory issues, market fluctuations, and operational disruptions.

Exit planning is a vital process for any business owner who wants to maximize the value of their business and achieve the best potential deal for their exit. There are various benefits of exit planning and several strategies to carry it out. It all depends upon the buyer's and seller's preferences and objectives.

Let us help you with your exit plan if you need more assistance. We will help you create a team of experienced and professional M&A advisors who can guide you through every step of the exit planning process. Contact us now to schedule a consultation .

Brian graduated from Michigan Technological University with a BS in Mechanical Engineering and as Captain of the Men's Basketball Team. After a four-year stint at Deloitte Consulting, Brian returned to school to get his MBA at the University of Michigan. Brian went on to join his first startup, a Ford Motor Company Joint Venture, and cofound a technology and digital marketing services agency. Through those experiences, Brian embraced the opportunity to provide M&A education and support to his fellow business owners as they navigated their own entrepreneurial journeys.

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It’s Not the End: Why Creating an Exit Strategy Sets Your Business Up for Long-Term Success

While there is a lot of content around how to successfully get your business off the ground, there isn’t much talk about creating an exit strategy to successfully quit a business. After all, who would want to think about leaving when you have likely spent years, if not decades, establishing your empire? Many businesses think of an exit strategy as a sort of “doom and gloom” outlook. In reality, it’s a good safety net to have, especially when you understand what it is and what it means for your business.

What is an exit strategy in business?

An exit strategy is a proactive plan to shift out of or liquidate an investment position, business transaction or venture. “An exit plan provides a roadmap for how businesses or investors will exit after realizing gains from their investment,” notes Carey Smith, senior vice president and chief operating officer of Blue Cross and Blue Shield of Minnesota. “Having a plan to exit helps manage risk by reducing exposure to potential downsides if conditions change and is especially important for startups or high-risk investments that face higher levels of uncertainty.”

Just as important as the strategy that initiated the business is the one that guides the “how” and “when” to exit. In an ideal situation, this plan is detailed along with triggers, measures and even events that could signal the right time to exit and move to the next thing.

“Being deliberate in defining the exit triggers is important because they may not be recognizable when they arise, if there hasn’t been proactive thought as to what they may be,” Smith adds. Also, business models, strategies and market conditions frequently change and evolve as the business progresses, so it is important to revisit them periodically. While not all exit triggers might need drastic action, defining them helps the business understand when to persevere and when to move on. 

“Remaining flexible is important. In our case at Plurilock, we went public very early during the pandemic, as that was an option available to us then,” says Ian Paterson, CEO and founder of Plurilock, a leading AI cybersecurity company. “However, if we wanted to do the same thing right now, it would have been very difficult to accomplish that.” 

Plan your business with the end in mind

As creators and entrepreneurs, starting with the end in mind is not an easy mindset to have and certainly requires a shift in perspective. Be aware of business environments and world factors that could influence or impact your decision, and make that a point of focus while building the strategy.

When thinking about the “how to” of exit strategies, Paterson recommends thinking of it like a car trip.

• Start with the end in mind . Know who you’re going to sell to and what they value. 
• Plan a route . Know what milestones you need to hit at various stages along the journey. 
• Ask for directions . Engage with service providers like bankers and accountants frequently.
• Don’t run out of gas . Make sure when you go to sell the company you don’t run out of money and negotiating power.
• Pace yourself . It’s a long ride.

And contrary to popular belief, an exit strategy does in fact align interests, incentives and goals regarding growth and profitability because it defines targets aimed toward business growth. “A well-defined exit strategy allows both businesses and investors to set expectations, manage risks, provide motivation and unlock the value created in an investment,” Smith notes.

Are there different types of exit strategies?

Key types of exit strategies available to businesses include sale of ownership, initial public offering (IPO), liquidation, recapitalization, debt restructuring or refinancing, ownership transfer, merger or buyback.

To determine which strategy might work best for you, a good place to start is to look at industry models applicable to similar businesses. Paterson advises that if the exit strategy is acquired by a competitor, certain aspects of the company, like corporate finances and internal controls, are more important than if the goal was to take the company public. 

If the goal is to get acquired by a venture capital, intellectual property, personnel and other assets might be more valuable. “With my company Plurilock, where we are acquiring regional cybersecurity providers, we are looking for strong sales and marketing teams with strong contracts,” he adds. “We value the strength of those relationships, and it is a strong component of our value process.” 

Exit strategy models to emulate

When looking at industry models to emulate, both Smith and Paterson share examples of both successes and failures. Smith notes that Facebook’s acquisition of Instagram ($1 billion), Oculus ($2 billion) and WhatsApp ($19 billion) provided significant returns for its investors. 

Likewise, Walt Disney Company’s acquisitions of Pixar and Marvel provided significant revenue and strategic market positioning. Perhaps one of the most notable is Google’s acquisition of Android, “which has successfully positioned Google as the market leader in smartphone operating systems, allowing significant control and access to consumer data,” Smith shares.

“Twitter is an interesting case study because it played out on the public stage,” Paterson notes. “Like many exits, at some points during the process, it looked like the deal would not go through, but eventually it closed roughly as expected.” 

For all the successful exits, there are an equal or greater number of failed exits that didn’t get the expected results. “Yahoo is one of the best examples of failing to acquire other exiting companies and failing to maximize on their own exit,” Smith recalls. “Yahoo refused to buy Google for $1 billion in 1998 and again refused $5 billion in 2002. In 2023, Google has a market cap of $1.7 trillion. And sadly, in 2008 Yahoo turned down an offer to be acquired by Microsoft for $44.6 billion and instead sold themselves to Verizon in 2016 for only $4.6 billion.”

How to create an exit strategy

When building a successful exit strategy, Smith suggests a checklist to help you get started:

• Document all the potential situations that would call for an exit, like market considerations, industry challenges and business model economics. 
• Allow for flexibility to support changes in priorities and space for new ideas, alternatives and changes in market conditions. 
• Define success metrics and articulate the outcome objectives and the value they will generate. 
• Note investor expectations to ensure alignment with the achievable value expected. 
• Create a roadmap with an exit timeline and expected targeted returns.

The choice of business model and industry influences the selection of an appropriate exit strategy. Startups take time to build an attractive valuation and therefore require patient investors with long-term exit plans such as venture capital firms. High-growth businesses require large capital investments, so they typically prefer acquisition exits in order to scale. 

High capital-intensive businesses have exit plans that require mergers where value is created through combined scale. Business models that generate value from intellectual property (IP) typically have exit plans that involve acquisition or revenue sharing and licensing deals that provide royalty.

Plan B: Less conventional options

If none of these types of exit strategies work, the good news is that there are a few less conventional exit strategies to consider. Employee stock ownership plans (ESOPs) give employees a more vested interest in the company, thereby allowing the original investor or owners to step back. Joint ventures (JVs) are co-owned partnerships where external parties are brought into the company fold. 

“Special Purpose Acquisition Company (SPAC) is a newer exit strategy that is growing in popularity, where a merger takes place with external SPAC providing capital investment opportunities that allow it to go public (IPO) at a much higher valuation,” Smith advises. Lastly, earnouts are contingent payments that can be based on future company performance. 

Creating an exit strategy is a smart business decision from the get-go and shows a forward-thinking approach to any business. For one to be successful, it is important to research and think about all factors that would impact the how , why and what of an exit strategy. 

“The most helpful thing to do would be to talk to a specialist, such as an investment banker and business broker to talk through strategies,” Paterson suggests. Smith adds, “Aligning the exit strategy with the vision and entrepreneurial motivations allows achieving value while also serving goals beyond just an immediate financial return.”

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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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Different Business Exit Strategies, Their Pros & Cons

Whether you are an entrepreneur with a startup or a seasoned CEO, you need to consider which of these business exit strategies is the one for you.

8 types of exit strategies

• Merger and acquisition exit strategy ( M&A deals)
• Selling your stake to a partner or investor
• Family succession
• Management and employee buyouts (MBO)
• Initial Public Offering (IPO)
• Liquidation

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1. m&a deals.

• This is one of the strongest exit strategies for business owners, as they can maintain control over price negotiations and set their own terms. If you are selling to a competitor or entertaining multiple bids, you may be able to drive the price up even further. 

M&A processes can be time-consuming and costly, and regularly fail. Use free preparation and project management tools in Ansarada Deals™  to streamline processes and ensure a high valuation.

2. Selling your stake to a partner or investor

• The company can continue to run with minimal disruption to business as usual, keeping revenue streams steady.
• ​It’s likely this person already has a vested interest in the business and is committed to its success in the long term.
• Finding a buyer or investor for your share of the company can be difficult.
• The sale may be less objective and therefore not as lucrative; you may lower the asking price if the buyer is someone close to you.

3. Family succession

• As a family member, it’s likely this person will have an intimate knowledge of the business and a good understanding of how it is run.
• This person can be prepared for transitioning into a leadership role over many years.
• With business in the family, you retain close connections to the business, possibly choosing to remain in an advisory or consulting capacity.
• The idea of running a multiple generation family business might seem attractive, but there may not be someone who is capable of taking on the role.
• Blurring professional and personal lines could lead to unnecessary financial or emotional stress for the family.

4. Acquihires

• If someone is actively trying to acquire your talent, you’ll be able to negotiate stronger terms of the acquisition.
• Your employees will enjoy a more certain and successful future.
• You may struggle to find a buyer who is interested in an acquihire.
• As with typical acquisitions, this can be a challenging and costly process.

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5. management and employee buyouts.

• You’ll be able to trust that the business is being run by someone experienced in the organization.
• The handover process is likely to be more straightforward than it would be in a sale to a third party.
• There may not be a manager or employee who is interested or ready to step in.
• Significant changes in management could have a negative flow-on effect on the business. 

6. Initial Public Offering (IPO)

• The potential to earn a substantial profit, more so than any other exit strategy.
• Expect intense and ongoing scrutiny from stockholders, regulatory bodies and the public.
• Additional requirements of an IPO include mandatory progress and performance reporting.
• IPO due diligence is difficult, costly and labour-intensive. Use Ansarada Deals™ to get complete oversight and control, and avoid the risks inherent in this process.

7. Liquidation

• If it’s a firm end you’re seeking, this is it. The business is well and truly gone after liquidation.
• This method can be simpler and faster to execute than other methods, such as acquisition.
• Liquidation is not likely to be a high-value exit.
• You could be breaking ties between you and employees, partners and customers.

8. Bankruptcy

• You’ll be unburdened of the debts and responsibilities of your business.
• You may struggle to borrow credit in future business endeavours.   

Succession planning is critical

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How to Exit a Trade

Developing an exit strategy, putting it into action, the bottom line.

• Trading Skills

Exit Strategies: A Key Look

Gordon Scott has been an active investor and technical analyst or 20+ years. He is a Chartered Market Technician (CMT).

Money management is one of the most important (and least understood) aspects of trading. Many traders, for instance, enter a trade without any kind of exit strategy and are often more likely to take premature profits or, worse, run losses. Traders should understand what exits are available to them and attempt to create an exit strategy that will help minimize losses and lock in profits.

Key Takeaways

• When it comes to trading, the decision of when to buy a stock can sometimes be easier than knowing when is the appropriate time to sell a stock.
• Identifying exit points is key, both to limit downside losses and to take profits before those opportunities disappear.
• Stop orders are a useful tool for acting on your exit strategy and can be updated as your view on the market changes.

There are only two ways you can get out of a trade: by taking a loss or by making a gain. When talking about exit strategies, we use the terms take-profit and stop-loss orders to refer to the kind of exit being made. Sometimes these terms are abbreviated as "T/P" and "S/L" by traders.

Stop-Loss (S/L) Orders

Stop-losses, or stops, are orders you can place with your broker to close a position automatically at a certain point, or price. When this point is reached, the stop-loss will immediately be converted into a market order . These can be helpful in minimizing losses if the market moves quickly against you.

There are several rules that apply to all stop-loss orders:

• Stop-losses are always set above the current asking price on a buy, or below the current bid price on a sell.
• Nasdaq stop-losses become a market order once the stock is quoted at the stop-loss price.
• AMEX and NYSE stop-losses enable you to have rights to the next sale on the market when the price trades at the stop price.

There are three types of stop-loss orders:

• Good 'til canceled (GTC) – This type of order stands until an execution occurs or until you manually cancel the order.
• Day order  – The stop-loss expires after one trading day.
• Trailing stop  – This stop-loss follows at a set distance from the market price.

Take-Profit (T/P) Orders

Take-profit, or limit orders , are the same as stop-losses in that they are converted into market orders to close a position when a point is reached. Moreover, take-profit points adhere to the same rules as stop-loss points in terms of execution on the NYSE, Nasdaq and AMEX exchanges.

There are, however, two differences:

• There is no "trailing" point. (Otherwise, you would never be able to realize a profit!)
• The exit point must be for a profit. (Below market price for a short trade and above price for a long trade.)

There are three things that must be considered when developing an exit strategy . 

1. How Long Am I Planning to Be in This Trade?

The answer to this question depends on what type of trader you are. If you are in it for the long term (for more than one month), then you should focus on the following:

• Setting profit targets to be hit in several years, which will restrict your amount of trades.
• Developing trailing stop-loss points that allow for profits to be locked in every so often in order to limit your downside potential . Remember, the primary goal of long-term investors is often to preserve capital .
• Taking profit in increments over a period of time to reduce volatility while liquidating.
• Allowing for volatility so that you keep your trades to a minimum.
• Creating exit strategies based on fundamental factors geared toward the long term.

If, however, you are in a trade for the short term, you should concern yourself with these things:

• Setting near-term profit targets that execute at opportune times to maximize profits. Here are some common execution points: pivot point levels,  Fibonacci / Gann levels, trend line breaks, and any other technical points.
• Developing solid stop-loss points that immediately get rid of holdings that don't perform.
• Creating exit strategies based on technical or fundamental factors affecting the short-term. 

2. How Much Risk Am I Willing to Take?

Risk is an important factor when investing. When determining your risk level , you are determining how much you can afford to lose. This will determine the length of your trade and the type of stop-loss you will use. Those who want less risk tend to set tighter stops, and those who assume more risk give more generous downward room.

Another important thing to do is to set your stop-loss points so that they are kept from being set off by normal market volatility. This can be done in several ways.

The beta indicator can give you a good idea of how volatile the stock is relative to the market in general. If this number is between zero and two, then you will likely be safer with a stop-loss point at around 10% to 20% lower than where you bought. However, if the stock has a beta upwards of three, you might want to consider setting a lower stop-loss, or finding an important level to rely on (such as a 52-week low, moving average  or another significant point).

3. Where Do I Want to Get Out?

Why, you may ask, would you want to set a take-profit or exit point , where you sell when your stock is performing well? Well, many people become irrationally attached to their holdings and hold these equities when the underlying fundamentals of the trade have changed. On the flip side, traders sometimes worry and sell their holdings even when there has been no change in underlying fundamentals. Both of these situations can lead to losses and missed profit opportunities. Setting a point at which you will sell takes the emotion out of trading.

The exit point itself should be set at a critical price level . For long-term investors, this is often at a fundamental milestone – such as the company's yearly target. For short-term investors, this is often set at technical points, such as certain Fibonacci levels, pivot points or other such points.

Exit points are best entered immediately after the primary trade is placed.

Traders can enter their exit points in one of two ways:

• Most brokers' trading platforms have the functionality that allows for entering orders. Alternatively, many brokers allow you to call them to place entry points with them. There is one exception, however: many brokers do not support trailing-stops. As a result, you may have to recalculate and change your stop-loss at certain time intervals (for example, every week or month).
• Those who do not have the functionality that allows for entering orders can use a different technique. Limit orders also execute at certain price levels. By putting in a limit order to sell the same amount of shares that you hold, you effectively place a stop-loss or take-profit point (because the two positions will cancel each other out).

Exit strategies and other money management techniques can greatly enhance your trading by eliminating emotion and reducing risk. Before you enter a trade, consider the three questions listed above, and set a point at which you will sell for a loss and a point at which you will sell for a gain.

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The benefits of various exit strategies: planning and getting the most out of a sale.

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President & Founder at APS Global Partners Inc. | President & Founder at Medias Health Inc.| Forbes Business Council Influencer.

It’s no secret that businesses should have an exit strategy. But what is an exit strategy, and why is it so important?

According to Investopedia , an exit strategy is a plan for selling or disposing of a financial or business asset when certain conditions have been met or exceeded. It is used by investors, traders, venture capitalists and business owners.

Four Types Of Exit Strategies

There are four main types of exit strategies businesses use to sell or dispose of their assets: initial public offering (IPO), mergers and acquisitions (M&A), private equity investment and private investment in public equity (PIPE).

By investing in an exit strategy, businesses have the potential to unlock immense value. But careful consideration must be given when analyzing a company's assets and liabilities.

Initial Public Offering

Going public via an initial public offering (IPO) provides a business with access to capital and exposure to stock markets or securities exchanges. It is a comprehensive process that involves meeting disclosure requirements, regulating all transactions according to trading rules and offering shares of stock or other forms of security for purchase by the general investing public.

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Ultimately, an IPO is useful in industries where value is dependent on consumer perception as it allows companies to gain widespread visibility quickly with minimal risk and effort.

Mergers And Acquisition

Mergers and acquisitions (M&A) are transactions that involve one company buying all or the majority of the assets of another company for strategic or financial reasons. This is an increasingly popular business strategy. However, these transactions often come with a myriad of legal, tax and commercial considerations that can be complicated for acquirers to navigate without the help of experienced investment bankers.

Private Equity Investment

Private equity investment is the acquisition of companies by private-equity firms, which specialize in making investments in return for an ownership stake in those enterprises. The shares are generally unavailable to the public. These firms acquire an equity interest in a company by purchasing its shares from existing shareholders and lenders and then exercising their right to purchase more shares at a future date.

All in all, private equity investment provides a great pathway for companies looking for more control over enterprise decisions without sacrificing access to unique resources for high returns.

Private Investment In Public Equity

Private investment in public equity (PIPE) refers to private investment in public equity (as opposed to private equity investing in private businesses) in which large institutional investors buy securities in newly formed companies at significantly discounted prices. PIPE is primarily done to access the company's future returns at comparatively low risk.

PIPE could be an ideal exit strategy for companies in rapidly changing industries or those that require long-term investment in research and development

When Planning An Exit Strategy

Crafting an exit strategy is the ultimate opportunity for you as an entrepreneur to reflect on your successes and challenges. An effective plan will enable you to approach retirement or further career ventures with clarity—free from any unfortunate surprises along the way—by properly disposing of assets in advance.

The strategic planning process you use to develop your exit strategy should include the following steps.

First, it's essential to have a clear vision of where your business will be in the future. What does success look like? Are you aiming for an increase in profitability over time so that it can generate maximum value when sold, or are there other goals, such as passing on management responsibility to another investor who will take things further? By defining these objectives now, you can help ensure that everyone is working toward the same outcome.

Next, you need to determine who will be involved in the process of selling your company. Will you take an active role in the sales process, or will you leave it to the professionals to handle the details? How will you select professionals best suited to your needs?

And finally, you will need to create a plan of action to help you achieve your goals.

Each of these steps is vital in successfully achieving your objectives. Be sure that you dedicate the proper time and resources to each task if you want to ensure that your exit strategy is as effective as possible.

Get The Most Value Out Of A Sale

Don't settle for less than what your business deserves. Take the time to explore all possible opportunities, and never forget that you don't have to accept any offer immediately. Thoroughly research potential buyers before deciding so that you can ensure a fair deal. In my experience, it will almost always be worth the wait.

Planning for all possible angles of a sale should be part of your process. Think about when to sell, what kind of business you're divesting from and the potential buyers who may show interest. A well-executed strategy in advance sets you up for long-term success.

Using Experts

Once you are ready to start looking for a buyer for your business, I find that talking to a business broker is an essential step in getting you prepared. They can assess where your sale process stands and help you discover potential buyers while ensuring that everyone involved gets fair terms. Their insights can be invaluable throughout this journey—saving time and stress on your part.

It's also essential to have professional guidance from an attorney as you navigate through this complex process. They can help clarify sale terms, secure fair dealings between both parties, address potential tax implications of the purchase and ensure legal rights are maintained throughout.

Lastly, a reliable accountant is a must-have for any business sale. They can set up the necessary accounts, line out your financials and help prevent future tax issues while safeguarding you from potential buyer disputes after closing.

With these experts on your side, you'll be more likely to end the transaction on solid footing.

Overall, to get top dollar for your business, you should start preparing well before the actual sale and carefully consider the options available to you.

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• Business Exit Planning: How to Create Value Before a Sale

by Bruce Eckfeldt | Jun 25, 2024 | Exit Planning , Financial Strategy

There comes a time in every business owner’s life when you must consider your next move. Perhaps you have another brilliant idea you want to pursue, or you’re ready to retire. Whatever the reason, business exit planning is vital to realizing that dream. As a value strategist, I have helped many CEOs traverse this path. Below, I explain how I approach this process to create the most value.

What Is an Exit Plan and Why Do You Need One?

Business exit planning is the process of assessing the state of your business, considering your short—and long-term goals, and outlining the steps you must take to make your company more valuable before pursuing an exit strategy.

If you wish to leave your company, your exit strategy probably involves selling your business, but there are many types of exit strategies. For a lucky few, an initial public offering (IPO) might be your path. But, for most small business owners, a common exit strategy includes selling to a private equity firm or a competitor.

In other words, any arrangement involving giving up company ownership or majority control is an exit. However, for this blog post, we will assume that your goal is to transfer ownership to another party (a private equity firm, partner, or family member), sell the firm to your employees, or engage in a management buyout.

What is the Purpose of Business Exit Planning?

Exit planning is critical because it helps you strengthen your position before pursuing a buyer and negotiating deals, thus improving your outcome. When building an exit plan, you think through the price, terms, conditions, and deal structure that would make a transaction worthwhile. You also scrutinize the state of your business to determine what you must improve to make such a deal possible. The better job we do, the better off you will be, with more choices and control over the sales process.

In most cases, the ideal arrangement for the seller is to receive the entire price in cash. However, as you go through this exercise, you will get the opportunity to consider other arrangements.

For instance, if an investor offered you 20% cash and 80% earned over time based on the company’s performance, would the risk be worth it? Probably not, especially if someone else will be making the business decisions. But if someone gave you the choice between $5 million today or $3 million and the potential for another $10 million over time, that might get your attention.

When I work with clients, my general rule is to get them to a point where they are happy with the cash they receive at signing. Said differently, even if you accept a go-forward role, we aim to structure a deal that gives you freedom and flexibility after the transaction closes. Therefore, I would coach you to avoid any arrangement that leaves you in a situation where you desperately want or need an eventual payout.

4 Steps of Business Exit Planning

So, what does the exit planning process entail? Let’s go through the steps so you know what to expect.

1. Find a Trusted Advisor

Selling and exiting a business isn’t easy, but not always for the reasons you would imagine. Naturally, the mechanics require expertise, but sometimes, the hardest part is being honest with yourself about what is and is not possible. If you built your company from the ground up, you have a lot at stake, both emotionally and financially. So, find an exit planning advisor you can trust who can be your objective partner throughout this process.

Contact your network or ask your financial advisor, estate planning professional, or tax accountant for recommendations. Ideally, you will find an experienced third party, such as a business strategist or fractional CFO , who can examine your situation, provide unbiased advice for creating value, and connect you with brokers or legal professionals when it is time to press forward.

2. Perform an Assessment and Clarify Your Goals

When I do this with my clients, I start with a company assessment. I identify issues and opportunities by looking at your business through a potential buyer’s lens. For example, we will go through an exercise to determine which aspects of your business could contribute to or detract from your valuation by looking at factors such as the following:

• Market Position: Do you have a differentiated product, brand, or reputation?
• Leadership Team and Talent: Is the CEO running everything, or are responsibilities shared among a strong management team and supported by a deep talent bench?
• Client Base:   Do you have a few large clients, many smaller ones, or a mix?
• Processes: Do you make it up as you go or have documented systems?
• Track Record: Are your monthly results consistent, or do they vary?
• Governance and Controls: How are decisions made at your company?

These are just a few items we will discuss concerning your organization. We will also examine your business plan and explore your readiness as a team. Then, we will use what we learn to develop an estimated baseline valuation .

Next, we discuss your goals with the above context in mind. I might ask you questions like:

• Why do you want to sell your business?
• What kind of buyer do you hope to attract? For instance, do you intend to sell your company to someone who will take over the day-to-day running of the business? Or are you comfortable working with a strategic buyer who may only want your technology, clients, or team?
• Are there any people you wish to protect or benefit in this process?
• What is your ideal outcome? How much do you hope to receive, and under what terms and conditions?
• Where would you be willing to compromise?
• What is your desired timeline? I encourage all business owners to run their companies as if they were going to sell anytime, optimizing as they go. However, most people engage an advisor at least 12 months before starting a sale process, but ideally, you should plan your exit strategy 2-3 years out.

Once we have completed these questions, we will compare the assessment to your goals to see if they align. If your goals aren’t realistic, given the state of your company, I might suggest you give yourself more time to shore things up and grow the business or adjust your expectations. Then, once we decide we are ready to press forward, we’ll build your plan.

3. Develop Your Plan

In most cases, preparing for an exit involves using what we learned to change fundamental aspects of the business to maximize valuation and get beneficial terms for the sale. We will use what we discovered in step 2 to prioritize.

First, we will identify 3-5 key objectives and what we expect them to do for you. These will be the improvements that will have the most positive impact on your outcome. Then, we will set targets and build an implementation team. Each month, we set specific goals and track progress as we go. Here is a snapshot of what your plan might look like.

Finally, before we move forward, we will agree on an implementation plan. For instance, team leaders may meet every 30 days to discuss high-level progress, update the plan, and reassess their objectives every 90 days. Meanwhile, each team might have a weekly call to discuss and troubleshoot any problems or opportunities.

4. Optimize Your Business

At this point, we will be ready to start the sale process. We can complete steps 1-3 above in about 30 days, but optimizing your company will take some time. So, I will remind you that, as the owner of your company, your job is to focus on running the business. Once we have a deal team in place, they will be in charge of whipping things into shape while you preserve the value you have already created.

After implementing our plan, we will reassess your company’s valuation and bargaining position. If satisfied, we will proceed with packaging, buyer identification, negotiations, due diligence , etc. But we will save that discussion for another day.

Business Exit Planning: The Bottom Line

Before you pursue a business exit strategy, you must develop and implement a plan to improve your valuation and strengthen your negotiating position. That will help you confidently enter the sales process and improve your outcome. Contact us today to discuss how we can help.

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Bruce Eckfeldt is a seasoned value strategist with a rich background across multiple industries who offers strategic advice to CEOs and leadership teams with big goals.

After graduating from McGill University in Montreal with two degrees in architecture, Bruce transitioned to digital product development early in his career, where he worked as a product strategy consultant for companies such as WebMD, Prada, the Department of Defense, and Motorola. In 2003, he founded Cyrus Innovation, one of the first Lean/Agile consulting firms. There, he worked with companies such as Boeing, Kaplan Test Prep, Simon & Schuster, Eze Software, and The New York Times on product development and Lean/Agile transformation initiatives. Bruce successfully sold Cyrus in 2013 to a strategic competitor and remained CEO to help with integration and ongoing strategy and leadership development.

Beyond his own company’s successful exit, Bruce has helped several companies with fundraising and transitions, including a $140M raise for a security technology company, sales of a $35M professional services firm, a $85M media company, and a $15M expert network. His personal and advisory experience gives him unique insights into optimizing strategy, operations, and key capabilities to maximize valuations. Bruce’s coaching expertise allows him to work with leaders and management teams to align goals and mindsets to drive successful transactions.

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Exit strategy planning: 8 actions for business owners

Updated 12 January 2024 • 9 min read

Planning your exit strategy before actually starting your business might seem a little counter-intuitive. But in fact, it’s important to think through your end-game so you can plan your journey accordingly. 

Leaving a business can be stressful. But a good exit strategy, planned well in advance, ensures a smooth transition if and when you hand over the reins to a new owner. In this guide, we’ll explore the pros and cons of different types of business exit strategies and when to use them. Then, we’ll show you how to plan your exit strategy.

What is an exit strategy?

An exit strategy is the plan that a business owner, founder, investor, or venture capitalist has for exiting a business. It may involve selling their share or the whole company for a financial return — or passing it onto a chosen successor.

Some owners have an exit strategy in place when they start their business. For example, they might plan to sell their business to a competitor in 5 years’ time for a 20% profit. However, a Voice of Australia Business Survey revealed that only 19% of Australian small-to-medium enterprises have an exit strategy or succession plan.

When are exit strategies useful?

You can use an exit strategy to:

Shut down a business that’s not profitable

Cash-out an investment after meeting profit objectives

Close a business if market conditions change significantly 

Sell a company

Sell some shares in a company 

Relinquish control or reduce ownership in a company

List your company on the stock market. 

Types of exit strategies

Here are 7 types of business exit strategies to consider based on your long-term goals. We’ve outlined the pros and cons of each option so that you can make the best choice for your company and employees.

Merger and acquisition (M&A) deals 

An M&A deal is the most popular exit strategy, especially for startups and entrepreneurs. Depending on the conditions of the agreement, you might remain involved in the business or exit altogether. 

You’ll most likely be selling your business to a larger company that may want to increase its reach or acquire your product expertise or capabilities to beat the competition. 

You can control the price, terms and details of the M&A 

If you are selling to a competitor or have several bids, you may be able to increase your asking price

You get a clean break from the business 

A merger could keep a struggling business running.

M&A deals can be lengthy, expensive and sometimes unsuccessful

The company culture and systems of the merging firms may be incompatible

The merger may result in employee layoffs

It may be hard to let go of your business.

Employees acquire an ownership interest

An Employee Stock Ownership Plan (ESOP) allows employees to acquire an ownership interest in a company by purchasing stocks or shares.

Empowers employees to make the business successful

Motivates employees and increases their commitment to the company

Causes less disruption to business operations.

ESOP company structures are challenging and costly to set up

Business decisions can take longer because all ESOP members need to approve.

Management buyouts

Like an ESOP, a management buyout (MBO) allows your senior management team to buy your business from you.

You can hand the business over to an experienced team

The transition will likely be more seamless than selling to a third party

The management team may lack experience in business ownership 

The management team may struggle to raise the funding required for a MBO.

Initial public offering (IPO)

An initial public offering (IPO) exit strategy involves selling shares of stock to the public and converting the company from private to public ownership. It’s best suited to companies that are sufficiently established and resourced to manage their responsibilities to shareholders. 

An IPO is one of the most profitable business exit strategies

IPOs can increase publicity, reputation and brand awareness.

An IPO is one of the most challenging and expensive exit strategies

Significant initial and ongoing documentation and reporting requirements 

Shareholders play a significant role in running the company. 

Liquidation

Liquidation is a common exit strategy for failing businesses, but you could also use it to exit a successful business. Liquidation involves selling your assets, repaying your creditors, paying any shareholders, and closing your business.

It’s a straightforward process that you can complete quickly

You can get your cash immediately.

You only make money from assets you can sell, such as land, inventory and equipment. 

There will most likely be job losses as a result.

Family succession

The family succession (or legacy) exit strategy lets you keep the business in the family by passing it onto the next generation. But your successor must have the necessary skills and commitment to keep the business running.

You have plenty of time to train your successor

Family members usually have a good understanding of how to run the business

You can remain as an advisor or consultant.

There may not be a suitable family member to take over

Choosing a successor can cause tension in families

Employees, investors or business partners may not be supportive of your choice.

Filing for bankruptcy is the exit strategy no business plans for. Yet, in extreme cases, it’s the only viable option. Although you may have assets seized, you’ll be relieved of debts and the burden of running an unprofitable business.

It relieves you of the responsibilities and debts of your business

You can move on from your failed business and start to rebuild your credit.

It’s possible that filing for bankruptcy will not relieve you of all of your debts

If you file for bankruptcy, you may have difficulty borrowing money in the future

Most likely, it will mean ending relationships with employees, suppliers and customers.

How to plan your exit strategy

An exit strategy sets out the timeline, financial and market conditions for you to leave the business and someone else take over. Follow these eight steps as you plan your exit strategy.

1. Define your intentions for the business

Start your exit strategy by defining your intentions for the business. For instance, you may want to merge with another company, leave it to a family member, or liquidate it.

2. Identify your target buyer

When choosing your target buyer or successor , you need to consider several factors, including:

Financial benefits and costs

Ease of transition

Continuity of service 

Future staffing requirements

Personality and cultural fit.

For example, if you’re selling to management or employees, you might need to stagger payments. Or, if you plan to keep the business in the family, you’ll want to ensure everything is transparent and fair, so there’s no conflict between family members. 

3. Establish an exit timeline

A vital part of planning your business exit strategy is establishing an exit timeline. Some buyers, such as employees or management, might not have enough cash to buy the business outright, so you may have to factor in a staggered transition period. Other buyers may request you stay on board to facilitate a smooth transition and satisfy existing clients.

4. Keep accurate accounting records

Most potential buyers will want to see at least two years of accounting and financial records. They’ll want to see steady growth and profitability rather than sudden spikes and dips in revenue. An accounting package like MYOB Business provides you an up-to-date and accurate view of your cash flow.

5. Make yourself redundant

One step you may not have considered before is how to make yourself redundant. You have to ensure that your employees know how to operate the business without you. So, plan how you will gradually step back, delegate important decisions to your management team, and become less available to your customers.

6. Document your processes 

You must document your business processes in a standard operating procedure manual. You need a single “how to” manual that covers every business process and workflow, such that a stranger could walk in, read the manual, and run your business without any disruption. Also, you’ll need to ensure you include employee job descriptions and their tasks and responsibilities. 

7. Get a professional business valuation

A business is only worth what someone is willing to pay for it. If a business valuation is lower than expected, you may have to spend more time growing the business. If it’s higher than a buyer expected, you might have to bide your time until they can raise enough funds. So it’s vital to get a professional business valuation to know what it’s worth and set realistic expectations for potential buyers.

8. Observe market conditions

Finally, it’s essential to observe the market conditions to determine the timing of your exit strategy. For example, if there’s more than one potential buyer, you’re better positioned to drive the selling price higher.

Take the stress out of your exit

It’s worthwhile having an exit strategy in mind before starting your business. Developing a plan from day one gives you time to review and refine it accordingly as the business evolves or new information comes to light. A well-planned exit strategy ensures a business continues to thrive by:

Defining your intentions for the business

Identifying your target buyer or successor

Establishing an exit timeline

Observing market conditions

Documenting your business processes

Reducing your day-to-day involvement

Storing accurate financial data

Including a professional business valuation.

You can use MYOB’s accounting software to keep accurate, up-to-date accounting records — if you ever decide to sell your business, you’ll be well prepared. 

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What you need to know about exit strategies

Why should you have an exit strategy?

Successful traders know that their greatest enemy can be their own minds. Often, emotions and loss aversion can get in the way of making good trading decisions. That’s why it's so important that you have a plan for getting out of an investment.

You should consider these questions before getting into a trade:

• How long do you intend to be in the investment?
• What will you be using to measure performance?
• How will you know when it’s time to get out?
• What order type will I use to carry out my exit strategy?

Having an exit strategy is essential in managing your portfolio because it can help you take your profits and stop your losses. Exit strategies are important whether you’re an active trader or a passive investor.

4 common ways to build a sound exit strategy

Even before you enter a trade, it can be helpful to have a plan for how you might exit the trade. After doing your research and getting into a trade, here are a few ways to plan your exit.

Using orders to set your exit strategy

There are many different methods for exiting an investment. Here are a few of the more common ones.

Planning your exit is one of the most critical parts of due diligence on an investment. A sound exit strategy can help you take profits, minimize your risk, and control your emotions. And who doesn’t like taking profits?

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A guide to crafting the ultimate business exit strategy.

A well-thought-out plan can help ensure a smooth and successful exit, whether selling your business, passing the torch, or retiring.

by Contributing Author

Crafting a solid business exit strategy is crucial for any business owner looking to transition out of their current venture. A well-thought-out plan can help ensure a smooth and successful exit, whether you are looking to sell your business, pass it on to a family member, or simply retire. This guide will delve into the importance of a business exit strategy, the legalities involved, evaluating your options, preparing your business for the transition, and timing your exit strategically.

Understanding the Importance of a Business Exit Strategy

The essence of a business exit strategy must be balanced for any entrepreneur contemplating the future of their venture. It serves as a blueprint for navigating the transition out of the business, tailored to the owner’s circumstances and objectives. The strategy ensures the business’s legacy’s continuity, mitigates its impact on its operations, and safeguards the interests of all stakeholders’ interests. Crafting a meticulously thought-out exit plan is pivotal in capturing the business’s actual worth, facilitating a seamless handover, and securing the owner’s financial future. It is the cornerstone of a strategic approach to relinquishing control, designed to preemptively address potential challenges and leverage opportunities for a favorable outcome. Without such a strategy, business owners may inadvertently compromise the integrity and value of their life’s work, facing unforeseen complications that could undermine their departure and the business’s sustainability post-exit.

Understanding The Legalities Of Business Exit Plans

Navigating the legalities of business exit plans is crucial when devising your business exit strategy. The choice of exit route—be it selling, passing on, or liquidating—carries distinct legal implications and requirements. Ensuring compliance with the relevant legal standards and regulations is paramount to avoid potential pitfalls derailing the process. This might involve meticulous preparation of various legal documents, including but not limited to business agreements, sale contracts, and transfer documents, all of which necessitate thorough review and understanding. Engaging with a solicitor experienced in commercial transitions is indispensable; they can provide bespoke legal advice and support tailored to the specific needs of your business and chosen exit path. This step is crucial for safeguarding the legal integrity of the exit process and protecting your interests and those of the stakeholders involved. By prioritizing the legal aspects from the outset, you can ensure a smoother transition and uphold the value and legacy of your business.

Evaluating Your Business Exit Options

Before embarking on the journey of finalizing your business exit strategy , a comprehensive evaluation of the available options is imperative. This process entails carefully considering various factors central to your personal and financial aspirations, as well as the enduring viability of the business in question. Amongst the plethora of exit avenues, the most common ones include divesting your business to a third party, transitioning ownership to a family member, or opting for asset liquidation.

Each pathway harbors its unique set of advantages and drawbacks. For instance, selling your business could potentially offer a lucrative financial return, whereas passing it onto a family member might ensure the legacy of your business continues within the family, albeit with possible financial and emotional complexities. Conversely, although it may seem straightforward, liquidation could result in the lowest return and signify the end of the business’s operational life.

Therefore, it is paramount to meticulously assess these options against the backdrop of your long-term objectives. This involves not just a surface-level analysis but an in-depth exploration of how each option aligns with your vision for the future, its impact on your financial goals, and the sustainability of the business under new ownership or in its cessation. Engaging in this evaluative process is critical in paving the way for a well-informed and strategically sound business exit.

Preparing Your Business for Sale or Transfer

Ensuring your business stands out to prospective buyers or heirs requires a meticulous approach to preparation. Undertaking a comprehensive valuation forms the bedrock of this process, offering clarity on the market worth of your venture. The thorough examination and rectification of any operational or financial discrepancies that could impede the transaction is equally imperative. By streamlining processes and bolstering the economic health of the business, you render it more enticing and secure for the following custodian.

Additionally, identifying and engaging potential successors or purchasers early can facilitate a more seamless transition. Efforts should also be directed towards enhancing the aesthetic and operational appeal of the business, which could involve updating technology systems, refining customer service protocols, or even a rebranding exercise. Such enhancements contribute to an increased valuation and assure potential buyers of the business’s viability and resilience under new stewardship. Diligent preparation thus serves as the linchpin in optimizing your enterprise’s attractiveness and ensuring a favorable transition, whether it be through sale or transfer.

Timing Your Exit Strategically

Deciding on the optimal moment to step back from your venture is a nuanced endeavour, requiring astute attention to the broader economic landscape and personal readiness. Strategically orchestrating your departure can significantly enhance the transaction’s outcomes, enabling you to capitalize on favorable market trends and economic conditions.

An adept timing strategy involves monitoring critical indicators within your industry, such as growth rates and buyer demand, alongside evaluating the overall economic climate to identify periods of prosperity that can elevate the business’s selling price. Additionally, aligning your exit with personal milestones or financial goals can further streamline the transition, ensuring you depart on your terms and at a juncture that benefits your future plans.

Engaging with finance and market analysis experts can offer invaluable insights, guiding you toward making an informed decision. Ultimately, a strategic approach to timing not only positions you to achieve a premium for your enterprise but also facilitates a smoother changeover, paving the way for the next chapter of your life and the business’s continued success under its new guardianship.

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Best Retirement Plans for Employees

Best retirement plans for self-employed individuals.

• Best Individual Retirement Accounts (IRAs)

Other Retirement Savings Options

• Why You Should Trust Us

Best Retirement Plans for 2024: Choosing the Right Path for Your Future

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Why Start Saving for Retirement Now?

Financial experts all agree: The sooner you start saving, the better. Retirement savings accounts offer long-term wealth-building features like compounding, tax advantages, and retirement-focused investment strategies. 

Compound interest allows you to earn interest on your interest. The longer your money grows, the faster it accumulates and the closer you are to achieving a financially secure retirement. Contributing a little here and there is better than not contributing at all. 

Moreover, retirement plans like IRAs and 401(k)s offer tax benefits. You can contribute pre-tax money to lower your taxable income today. Or you can contribute after-tax money for tax-free growth and withdrawals. 

Here are Business Insider's editors' top picks for the best retirement plans in 2024. 

401(k) Plans

401(k)s are popular retirement savings plans offered by for-profit companies. Employees can open a traditional 401(k) or a Roth 401(k). Traditional 401(k)s grow with pre-tax dollars, but Roth 401(k)s rely on after-tax contributions, just like with IRAs.

Employees can contribute up to $23,000 in 2024, and individuals age 50 and older can contribute additional "catch-up" contributions of $7,500. 

Many 401(k)s offer employer-matching contributions. Your employer matches up to a certain limit for every dollar you put into your account. This is generally considered "free money" toward your retirement. For instance, if you make $50,000 annually, and your company matches 50% of your 401(k) contributions up to 5% of your salary, you would need to contribute $2,500 into your account to receive the full match amount. Your employer would then contribute an additional $1,250 a year.

403(b) Plans

403(b)s, or tax-sheltered annuities, are retirement plans for public school employees, tax-exempt organizations, churches, and other nonprofit companies. Similar to a 401(k), 403(b)s may offer the benefit of an employer match. You can contribute pre-tax or after-tax money. 

If you're under 50, you can contribute up to $23,000 in 2024. Employees 50 and up can contribute an additional $7,500. In addition to pre-tax and after-tax contributions, you can contribute to your 403(b) by allowing your employer to withhold money from your paycheck to deposit into the account.

Thrift Savings Plans

Thrift savings plans (TSPs) are retirement accounts for federal and uniformed services employees. Like 401(k)s, these plans let you contribute pre- or after-tax dollars. But, unlike many 401(k) employer matches, most TSPs offer a full 5% contribution match. Your employer will match your contributions up to 5% of your salary.

The annual contribution limit for 2024 is $23,000. The catch-up contribution limit is $7,500. 

457(b) plans are retirement savings accounts offered by certain state and local governments and tax-exempt organizations. Like 403(b)s, you can contribute to your 457(b) plan by asking your employer to withhold a portion of your paycheck and deposit it in your retirement plan. Some employers allow you to make Roth contributions. 

The annual contribution limit for 2024 is $23,000. The catch-up contribution limit is $7,500. Folks 50 and older can contribute up to the annual additions limit, currently $69,000. 

Pension Plans

Pension plans are retirement plans fully funded by your employer, who are required to make regular contributions toward your retirement. However, depending on the plan's terms, you may not have control over how the money is invested. 

There are two main types of pension plans: the defined contribution plan and the defined benefit plan. 401(k)s are technically considered defined-contribution pension plans, and your employer is not responsible if your investments perform poorly.

Traditional pension plans are defined benefit plans (plans with fixed, pre-established benefits). Employers are liable to provide retirement funds for a certain dollar amount, calculated based on employee earnings and employment years.

Solo 401(k)

Solo 401(k)s are an option for business owners who work for themselves and have no employees. They can contribute as both an employer and employee (and spouses of business owners may be able to contribute as well), meaning they can contribute twice as much. You can make pre- or post-tax (Roth) contributions to your account. 

As an employee, you can defer up to $23,000 of your self-employed income in 2024. If you're 50 or older, you can make an additional $7,500 catch-up contribution. As an employer, you can contribute up to $23,000, plus the catch-up contribution if you're 50 or older. The total contribution limit is $76,500. 

Simplified employee pension (SEP) IRAs are retirement vehicles managed by small businesses or self-employed individuals. According to the IRS, employees (including self-employed individuals) are eligible if they are 21 years old, have worked for the employer for at least three of the last five years, and have made a minimum of $750. 

SEP IRAs also require that all contributions to the plan are 100% vested. This means that each employee holds immediate and complete ownership over all contributions to their account, including any employer match. You can contribute up to $69,000 or 25% of your employee's compensation 2024.

Vesting protects employees against financial loss. For instance, according to the IRS, an employer can forfeit amounts of an employee's account balance that isn't fully vested if that employee hasn't worked more than 500 hours in a year for five years.

SIMPLE IRAs are for self-employed individuals or small businesses with 100 employees or less. According to the IRS, these retirement plans require employers to match each employee's contributions on a dollar-for-dollar basis up to 3% of the employee's salary.

To qualify, employees (and self-employed individuals) must have made at least $5,000 in the last two years and expect to receive that amount during the current year. But once you meet this requirement, you'll be 100% vested in all your SIMPLE IRA's earnings, meaning you have immediate ownership over your and your employer's contributions. 

Employees can contribute up to $16,000 in 2024. You can also add a catch-up contribution of $3,500 if you're 50 or older.

Payroll Deduction IRAs

Small businesses and self-employed people can set up employee IRAs even simpler. With payroll deduction IRAs, businesses delegate most of the hard work to banks, insurance companies, and other financial institutions.

After determining which institutions their employer has partnered with, employees can set up payroll deductions with those institutions to fund their IRAs. These accounts are generally best for employees who don't have access to other employer-sponsored retirement plans like 401(k)s and 457(b)s.

For 2024, you can contribute up to $7,000 in annual contributions and up to $1,000 in annual catch-up contributions for employees aged 50 or older. 

Best Individual Retirement Arrangements (IRAs)

One of the most appealing components of independent retirement plans like IRAs is that you can open one as long as you've got taxable (earned) income. And even if you have an employer-sponsored retirement account, you can usually set up a traditional IRA, Roth IRA, and other independent retirement accounts.

Traditional IRA

Traditional IRAs let you save with pre-tax contributions toward your retirement savings. You'll pay tax when you withdraw during retirement. Traditional IRAs are recommended for higher-income workers who prefer to receive a tax deduction benefit now rather than later.

The 2024 contribution limit is $7,000, with up to $1,000 in catch-up contributions.

Roth IRAs are funded by after-tax dollars, meaning you pay taxes on your contributions now and make tax-free withdrawals later. As long as you're eligible, experts recommend Roth IRAs for early-career workers who expect to be in a higher tax bracket when they withdraw. Traditional and Roth IRAs share the same contribution limits: $7,000 in 2024, with up to $1,000 in catch-up contributions.

If you want to open one of the best Roth IRAs , single filers can only contribute the maximum amount in 2024 if their modified adjusted gross income (MAGI) is less than $146,000. Married couples must earn less than $230,000 annually to contribute the full amount in 2024. You can still contribute less if you earn a little more, though. 

You can find your MAGI by calculating your gross (before tax) income and subtracting any tax deductions from that amount to get your adjusted gross income (AGI), then adding back certain allowable deductions.

Spousal IRAs

There's also an option for married couples where one spouse doesn't earn taxable income. Spousal IRAs allow both spouses to contribute to a separate IRA as long as one spouse is employed and earns taxable income. This account allows the nonworking spouse to fund their own IRA. 

In 2024, each can contribute $7,000 (or $8,000 if they are 50 or older) for up to $16,000 annually.

Rollover IRAs

The best rollover IRAs let you convert your existing employer-sponsored retirement plan into an IRA, something experts generally recommend doing when you leave a job for a few reasons: primarily because you have more control over the investment options in an IRA than in a 401(k), and also because it's easier to consolidate your accounts for record-keeping.

Many online brokerages and financial institutions offer rollover IRAs; some will even pay you to transfer your employer-sponsored plan to an IRA.

Self-Directed IRAs (SDIRAs)

You can fund a self-directed IRA using traditional or Roth contributions ($7,000 and contribution limits in 2024, plus another $1,000 for catch-up contributions). But the difference between these accounts is mainly one of account custody and investment choices.

Unlike traditional and Roth IRAs, the IRS requires that all SDIRAs have a certified custodian or trustee who manages the account. These third parties handle the setup process and administrative duties of the IRA (e.g., executing transactions and assisting with account maintenance).

SDIRAs also give investors access to a wider range of investment options. With traditional and Roth IRAs, you're limited to mutual funds, ETFs, stocks, and other traditional investments. But, SDIRAs allow you to invest in alternative assets like real estate, precious metals, and cryptocurrencies .

Nondeductible IRAs

Nondeductible IRAs are for people who earn too much to get the full tax benefits of an IRA. Contributions for these accounts aren't tax deductible, meaning you'll fund your IRA with post-tax dollars like a Roth IRA. The difference is that you'll still have to pay taxes on any earnings or interest from the account once you withdraw at age 59 1/2.

Annuities are investment vehicles purchased from insurance companies at a premium. You'll receive periodic payouts during retirement once you purchase an annuity using pre-tax or after-tax dollars. Annuities offer a reliable income stream for retirees and reassurance they won't outlive their savings. 

The funds in an annuity can also be invested. Before you start receiving payouts, the investment gains grow tax-free, but you'll still be liable to pay income tax. Plus, annuities have limited liquidity and high fees that may diminish potential gains. 

Health Savings Accounts (HSAs)

Health Savings Accounts (HSAs) are savings accounts designed to cover medical expenses but can double as retirement savings. Once you're 65, you can withdraw the funds from your HSA penalty-free for non-medical expenses. 

While an HSA isn't a great main retirement savings vehicle, it can be a great addition to a different long-term savings account. In addition to penalty-free withdrawals on qualifying expenses, HSAs are funded with pre-tax dollars and grow-tax-free. But you'll still be subject to income tax. 

In 2024, you can contribute up to $4,150 for self-coverage and $8,300 for family coverage. Folks 55 and older can contribute an additional $1,000 catch-up contribution. 

Choosing the Best Retirement Plan for You

If you're not a small-business owner or self-employed, the best retirement plan for you usually depends on your type of employer, marital status, and short- and long-term savings goals. 

However, for most employer-sponsored retirement accounts, you can decide whether to make pre-tax or post-tax (Roth) contributions to your account. Roth contributions are best for those who expect to pay more in taxes as they age, but you should consider pre-tax contributions if you don't mind paying taxes when you withdraw money from your account in retirement.

You can boost your retirement savings even more by opening a separate IRA in addition to your employer-sponsored plan (you can still save toward retirement with an IRA if you're unemployed).

FAQs About Retirement Plans

Your best retirement option depends on your income, employer, financial situation, time horizon, and goals. If you can access a retirement savings account through your employer, especially a pension or 401(k) plan, that is likely your best option. If not, a traditional or Roth IRA offers tax advantages, compounding power, and flexible investment options.

A traditional or Roth IRA may be a better retirement saving account than a 401(k) due to the low fees and flexibility. Although 401(k)s come with great benefits like an employer match, they have high fees that can eat away at gains. An IRA may be a better option if your employer is not covering those fees. 

A Roth IRA may be the better option, depending on your situation. In most cases, a 401(k) is the stronger retirement account due to the convenience of automatic payroll deduction and the additional benefit of an employer match. However, Roth IRAs can double as emergency funds. A Roth IRA may be better if you're looking for increased flexibility and Roth tax benefits. 

Why You Should Trust Us: Our Expert Panel For The Best Retirement Plans

We interviewed the following investing experts to see what they had to say about retirement savings plans. 

• Sandra Cho , RIA, wealth manager, and CEO of Pointwealth Capital Management
• Tessa Campbell , Investment and retirement reporter at Personal Finance Insider

What are the advantages/disadvantages of investing in a retirement plan?

Sandra Cho:

"The main advantage is the tax implications of the account. Depending on the account, taxes will either be deferred or not included at all. For employer-sponsored retirement plans like 401(k)s, contributions to the plan are made with pre-tax funds, and the account grows tax-deferred. Taxes are then owed upon withdrawal.

"Roth IRAs, on the other hand, are contributed to with post-tax funds but grow tax-free. Both should be included in an investor's portfolio. Another advantage is that 401(k)s often have an employer matching component. That is, an employer will match your contributions up to a certain point (usually around 3% of your salary). 

"The disadvantage is that retirement accounts have a max contribution limit. Another disadvantage is that these funds cannot be used until age 59 1/2. For younger investors, that can be a long time wait."

Tessa Campbell: 

"Tax benefits and compound interest are two of the major advantages of contribution to a retirement savings plan like a 401(k) or individual IRA. Depending on the kind of plan you open (traditional or Roth), you can benefit from contributions after- or post-tax dollars. In addition, some 401(k) plans are eligible for employer-sponsored matches, which are essentially free money.

"The disadvantage of a retirement plan is that you won't be able to access the funds in your account penalty-free until you're at least 59 1/2 years old. Unless there are no other options, early withdraws from a retirement savings plan isn't advised."

Who should consider opening a retirement plan?

"Every individual should be investing through a retirement plan if they have the financial capability to. At the minimum, investors should try to contribute up to the matching amount for their 401(k) and the maximum amount for their Roth IRA. The growth in these funds compounds over time, helping to enhance the long-term return."

Tessa Campbell:

"I can't think of a single person that wouldn't benefit from a retirement savings plan, other than maybe someone that is already well into retirement. Although some younger individuals don't feel the need to start contributing quite yet, it's actually better to open an account as soon as possible and take advantage of compound interest growth capabilities."

Is there any advice you'd offer someone who's considering opening a retirement plan?

"I would advise them to work with a financial advisor or trusted professional. This will give them insight into where they should be investing their money, whether that be a 401(k), Roth IRA, or another vehicle. There are plenty of people and sources out there who provide important information and can help you create a strong financial future."

"Don't contribute huge portions of your salary if it doesn't make sense with your budget. While contributing to a retirement savings plan is important, you must still afford your monthly expenses and pay down an existing debt. If you're having trouble establishing a reasonable budget, consult a financial advisor or planner for professional help."

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Walgreens Plans ‘Significant’ Store Closures, Citing Weak Consumer Spending

The pharmacy giant told investors that shaky consumer spending was affecting its retail operations. But some said the company’s strategy was also to blame.

By Danielle Kaye

Walgreens is planning to close more of its roughly 8,700 stores in the United States, its parent company said on Thursday, after the retail pharmacy giant reported third-quarter earnings that fell short of analyst expectations.

The pharmacy chain also cut its profit outlook for the year, citing worse-than-expected consumer spending.

“We witness continued pressure on the U.S. consumer,” Tim Wentworth, the chief executive of Walgreens Boots Alliance, told investors during an earnings call on Thursday. “Our customers have become increasingly selective and price-sensitive in their purchases.”

As of February, Walgreens has closed 625 U.S. stores. The company did not specify how many additional stores it would close as part of its “significant multiyear” program to cut back on costs. But roughly a quarter of the pharmacy chain’s U.S. stores — those that the company doesn’t see as crucial to its long-term strategy — could be affected, Mr. Wentworth said.

The company’s shares, which tumbled more than 20 percent on Thursday after its earnings report, ended the day down about 22 percent. They have fallen 54 percent this year.

Walgreens said it was seeing signs of strain on lower-income consumers in particular, driven by high inflation and depleted savings. Last month, on the heels of a similar move by Target, Walgreens said it would cut prices on over 1,300 products in response to sluggish consumer spending.

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