Business Exit Strategy Guide for Owners: Examples of Exit Strategies and How to Choose One

When it’s time to step away from the business you’ve built — because you’re ready to retire, you want to pursue another opportunity, or for some other reason — what’s the right way to exit your business?

The short answer is: It depends. 

A business exit strategy is a plan for transferring ownership, leadership, or assets when an owner decides to step away. The right strategy depends on what you want the exit to accomplish, how quickly you want it to happen, and whether the business is ready to succeed without you.

Here, we lay out five examples of exit strategies and look at who should consider each one.

Read on for the details, or get the highlights from this lively 10-minute webinar led by InterimExecs CEO Robert Jordan:

1. Merger or Acquisition

A merger or acquisition can be an attractive exit strategy for owners of profitable companies that have built something another organization or investor wants to acquire.

A strategic buyer might be looking to enter a new market, add products or capabilities, acquire talent or intellectual property, expand its customer base, or eliminate a competitor. A financial buyer, such as a private equity firm, is more likely to see the company as an investment that can be grown or combined with other businesses and eventually resold.

The purchase price may be paid in cash, buyer stock, or a combination of the two. Some transactions also include seller financing, an earnout based on future performance, or rollover equity that allows the owner to retain a stake in the business.

Who Should Use M&A as a Business Exit Strategy?

An M&A exit may be a good fit for a successful company with attractive financial performance, growth potential, a defensible market position, and operations that can continue without depending entirely on the current owner.

However, making a deal that sticks can be challenging and time-consuming. And getting the company ready for the sale has its own demands. It is a good time to call in an interim CFO with experience selling other companies. That is especially true for companies that haven’t had to report to outside investors; an acquisition exit strategy can require a whole new level of financial reporting and accountability.

2. Management, Employee, or Partner Buyout

Instead of selling to an outside buyer, an owner may transfer the company to people who already know it well. That could mean selling to an existing business partner, the management team, a group of employees, or an Employee Stock Ownership Plan, commonly known as an ESOP.

These are sometimes described as “friendly buyer” sales because the purchaser already understands the business and is committed to preserving its employees, culture, customer relationships, and way of operating.

A management buyout can work particularly well when the company already has a capable leadership team that is running much of the day-to-day business. An employee ownership structure may also provide continuity while giving employees a financial stake in the company’s future.

Who Should Consider a Friendly Buyer Sale?

An internal sale may be a good choice for an owner who values continuity and wants to transfer the business to people they know and trust. It can reduce some of the disruption associated with bringing in an outside buyer and may provide greater reassurance to employees, customers, and suppliers.

The primary challenge is usually financing. Managers, employees, and existing partners may not have enough capital to purchase the company outright. The transaction could require bank financing, outside investors, seller financing, or payments made over time.

That financing limitation can affect the valuation, the amount the owner receives at closing, and the risk the owner continues to carry after the transaction. Owners should carefully evaluate the buyer’s ability to lead the company as well as the proposed purchase price and payment terms.

3. Family Succession

As the name suggests, this is an exit strategy option chosen by many (but not all) family-owned businesses. It means passing the business down to someone in the next generation of the family, usually someone who has been groomed for the role for years and will run the day-to-day operations in much the same way it’s always been run.

Family succession can preserve the company’s legacy, keep ownership within the family, and provide continuity for employees and customers. But it also introduces issues that do not arise in a conventional sale. The family must decide who is qualified to lead, how ownership will be distributed, what role the departing owner will play, and how family members who are not active in the company will be treated.

Succession is also more than choosing the next CEO. The incoming leader needs the authority, experience, relationships, and support required to run the business successfully. Meanwhile, the departing owner must be genuinely prepared to give up decision-making responsibility.

Who Should Consider Family Succession as a Business Exit Strategy?

Family-owned companies with a family member (or members) already serving in senior-level roles in the company are the most likely to choose this exit plan. On the upside, it keeps the business, its legacy, and its income-producing operations in the family. But it only leads to success if the next-gen leader is fully up to the task. Statistics show that second-generation-led organizations have a 60 percent failure rate. For the third generation, it’s an even more stunning 90 percent.

Success can hinge on outside advice. That’s when an interim CEO with experience in transitioning leadership can help. The interim leader can mentor the appointed successor and mediate between the incoming and outgoing owners.

If this is the exit strategy you choose, read our full exploration of the challenges of transitioning business leadership to the next generation and this advice for dealing with conflict in a family business.

4. Going Public with an Initial Public Offering (IPO)

An IPO exit is most likely only available to larger companies with a proven track record of success and the potential for scalable growth. Choosing an initial public offering — selling shares on a stock exchange — is a serious endeavor that comes with high regulatory hurdles and intense due diligence scrutiny of your business operations, financials, and strategic plan. 

An IPO can take many months and require specialized expertise you likely do not have within the company’s leadership team. It’s a good time to consider an interim CFO with experience taking other companies public, managing disclosures, and working with investment bankers.

While founders and other existing shareholders may be restricted from selling their shares for a defined period, an IPO offers huge potential for a big payday for owners.

Who Should Consider an IPO Exit?

Reserved for larger, scalable companies with a compelling growth story and the financial, operational, and leadership capabilities required to function as a public company.

And it’s important to note that going public could mean the owner has to stay on for a defined period as the organization’s leader to ensure stability in the post-IPO phase.

5. Liquidation

Liquidation means closing the business and selling its assets. Those assets might include buildings, equipment, vehicles, inventory, intellectual property, customer lists, and other property with market value.

This is a common exit strategy for failing business ventures. It means you are closing the business and selling off its assets — the buildings, vehicles, machines, and inventory — in a final sale that ends the company.

But that is not the only situation when liquidation is the best exit strategy. An owner may also choose liquidation when there is no qualified buyer or successor, when the company depends too heavily on the owner to be sold as an ongoing operation, or when its assets are worth more than the operating business.

Who Should Choose Liquidation?

This is the option for companies that are losing money and have little hope of turnaround. Closing the business and selling off the assets can net the owner some cash, but often the sale proceeds end up going to creditors.

How to Choose the Right Exit Strategy

The best exit strategy is not necessarily the one with the highest advertised sale price. It is the one that produces the best overall outcome for the owner while giving the business a realistic path forward.

Start by asking what you want the exit to accomplish:

• Do you want to maximize the amount of cash you receive at closing?
• Is preserving the company’s legacy a top priority?
• How important is continuity for employees and customers?
• Do you want a complete exit, or would you consider remaining as an advisor, executive, or minority owner?
• How quickly do you want the transition to happen?
• How much transaction risk are you willing to accept?
• Is there a qualified family member or management team ready to lead?
• What will the transaction mean from a tax and estate-planning perspective?

How InterimExecs Can Help

Get the clarity you need by engaging InterimExecs RED Team of top executives who work with owners to develop and execute the right strategic plan for exiting your business.

Our RED Team executives can help owners:

• Assess the company’s exit readiness
• Identify operational and financial issues that could reduce value
• Improve reporting, forecasting, and internal controls
• Reduce the company’s dependence on its owner
• Build or strengthen the leadership team
• Prepare for buyer due diligence
• Support negotiations and transaction execution
• Develop a practical transition plan for new ownership or leadership

Read Our Full Business Exit Series:

Part 1: Choosing the Exit Strategy that is Right for You

Part 2: The Critical Importance of Business Succession Planning

Part 3: Identifying the Right Successor

Part 4: Family Business Transition to the Next Generation

Part 5: Managing Conflict in a Family Business

Part 6: Selling Your Company to Private Equity