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

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. 

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 and Acquisition Deals

A merger or acquisition is a particularly attractive option for entrepreneurs and business owners of successful startups. It means selling your business to another company that wants to expand, eliminate the competition, or acquire your company’s talent, infrastructure or project. If the company is a fast-growing startup in the technology sector, it can command offers from venture capital firms as well.

An M&A deal can be the most lucrative for a business owner because you can maintain control over the terms and the price of the deal.

Who Should Use M&A

This is the best exit strategy for a highly successful business that can command interest from more than one suitor. Attracting multiple bids from potential buyers is the way to really drive up the price.

However, making a deal that sticks can be a challenging and time-consuming process. 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. Friendly Buyer Sale of the Company

This can mean selling to an existing partner or setting up an employee buyout. These types of deals are usually considered “friendly buyer” sales because the purchaser is often an individual or entity already known to the small business owner.

Who Should Consider a Friendly Buyer Sale

Most often a small business exit strategy, selling to a friendly buyer means the investor or buyer has the best interests of the company in mind. Chances are it will mean a smooth transition and the company will continue running as it always has, especially if it’s a management buyout or the workers take ownership.

On the downside, this type of exit strategy can mean a lower business valuation and, therefore, less cash to the owner who is selling.

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 ways it’s always been run.

While this is one of the most common types of exit strategies, family succession requires a whole different level of business succession planning because you’ll be navigating the potentially treacherous waters of family politics in addition to planning for the future of your company.

Who Should Consider Family Succession

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 third gen, it’s an even more stunning 90 percent.

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 $100 million or more in annual revenue. 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.

On the upside, there is huge potential for a big payday for owners.

Who Should Consider an IPO Exit

Reserved for large, successful companies, an IPO business exit plan can be the right choice for companies with a proven track record. But, it’s important to note, going public could mean that you have to stay on for a defined period as the organization’s leader to ensure stability in the post-IPO phase.

5. Liquidation

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.

Who Should Choose Liquidation

This is the option for companies that are losing money and have little hope of recovery. 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 InterimExecs Can Help

We have scores of executives experienced in selling, restructuring, and turning around businesses. Contact InterimExecs for a confidential consultation about your plans for the future and what the company you have built needs to smoothly transition to new leadership. InterimExecs RED Team of top executives work with owners to develop and execute a strategic plan for exiting your business. That means providing operational expertise to increase the value of your business and putting structure in place so you can successfully change roles or transition out.

Read Our Full 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