An exit strategy is a meticulously planned approach to end or transition a business using different ways, which include but not limited to, selling the stake one in a firm. An exit plan should not be circumstantial, but it should have been planned. It is not a question whether one will sell or dispose of their interest in the business, it’s a question of when and how that will happen.
Planning is a vital move. With one accord, the exit strategy should be agreed to by the partners, investors, and founders. This ensures that the decisions made have in mind the exit strategy. It influences different sectors of the business, as various parties related to the company will have different concerns. The investors’ interest in the business is different from those of the bank or employees.
Selling is not the only way of an exit strategy. It is a personal decision and varies from one individual to the other. If one opts to use this route, they need to optimize the terms of sale. Selling gives an entrepreneur an opportunity to diversify their portfolio when they sell their stake and become part of a larger firm. Nonetheless, it’s like one has given up on their ‘baby’ and has no control of the direction the business will take. It’s always critical to know when to sell the company (William). Other exit strategies to utilize is going public; however, this channel limits the exit options available in the future, which, by default, defines the exit strategy. Passing control to an heir is another model of an exit strategy. It is more common than most entrepreneurs might think. Nonetheless tax law has limits on this and is a lengthy and tedious process. This route requires that one takes action when the business is in its early years when the share price is low, and the entrepreneur has many years to give away part of the shares. Lastly, one may opt to sell shares to employees and can be very rewarding as it boosts employees’ motivation. The employees can be given incentives in the form of equity, such as performance-based stock bonuses and stock purchase plans.
An exit strategy is thus one of the most critical element of any business. First, it provides a blueprint of success as it helps in defining the success of a company and allows the timeline to chart how the progress is going. Second, it provides a basis for strategic decision making. Without a planned end game, it happens that the business can be caught in the daily operations than focus on the long term strategy that informs the company. This, in turn, makes the daily running of the business even more strategic. Third, the value of the business is enhanced in that the company’s worth with the current owner has a predetermined and preferred success. Fourth, an exit strategy provides a flexible template. Even though the initial exit strategy might be adjusted over time due to changes in circumstances, if it is there from the onset, it provides benchmarks and guidelines in case of an unexpected early exit from the business like death or a significant health problem (Traxler). Lastly, with a robust framework of the entire company, it provides both strategic and practical across all the functions of the business.
Traxler, Dale. “The Importance of an Exit Strategy.” Practical Ecommerce, Practical Ecommerce, 31 May 2013, https://www.practicalecommerce.com/The-Importance-of-an-Exit- Strategy.
William, Payne. “Choosing Your Exit Strategy”.