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March 25, 2024

Business Exit Strategy: 5 Ways To Leave Your Company (+ Examples)

Planning your business exit strategy is key to selling your business. Get inspiration from these examples to leave your company the right way.

Business Exit Strategy: 5 Ways To Leave Your Company (+ Examples)

Most of the emphasis on entrepreneurship is placed on starting and growing a business. But an often overlooked and equally vital aspect is having a business exit strategy.

Whether you're trying to sell your business fast or take your time, having a concrete plan matters. Since the future is unpredictable, it's still a good idea to give yourself the option even if you can't see yourself selling right now.

This article will shed light on the importance of this topic. In it, we'll delve into business exit planning while presenting examples. By understanding different types of exit strategies, you'll be able to make informed decisions and safeguard your investments.

What is an exit strategy?

At its core, it is a planned approach to the end or transition of an entrepreneur's involvement in a business venture. It's the process of preparing your business for a change in ownership or a shift in operational leadership.

An exit strategy business plan is initiated due to various reasons. Sometimes it's to cash in on an investment, manage unforeseen market shifts, or address personal reasons like retirement. Either way, it is important to plan with anticipation.

What is the exit stage of a business?

The "exit stage" of a business specifically denotes the phase in which the strategy is executed, leading to the culmination or transformation of the business.

In business exit planning, it's essential to understand that having an exit plan is not only about the endpoint but also about making strategic decisions.

Why planning a business exit is essential

Every business owner needs to start thinking about business exit planning as soon as possible. A well-thought-out exit strategy ensures that you're prepared for inevitable changes.

Failing to plan can have serious repercussions. For instance, unforeseen circumstances such as sudden health challenges or drastic market downturns could force a business exit. Without prior exit strategies in place, such unexpected situations can be devastating.

Starting your exit plan early provides flexibility and allows you to adapt, giving your business a competitive edge. Simply put, it is about ensuring a smooth and profitable journey.

Planning for a smooth transition

Preparing successful business exit strategies isn't a task to be left to the last minute. It's an ongoing process that demands attention to various aspects of your business.

At the heart of your business exit planning is financial readiness. Ensuring your financial statements are transparent, well-documented, and show consistent growth can significantly boost your business's valuation potential buyers. Beyond the books, consider your team. Employee training is crucial.

A well-trained, competent workforce demonstrates to potential buyers a company's ability to continue thriving post-exit. It's a reassurance to potential successors that they're stepping into a smoothly running operation.

Additionally, streamlining operations is another key component of business exit planning. Efficient, lean processes not only maximize profitability but also present your business as a well-oiled machine, ready for transition.

5 types of exit strategies (+examples)

Understanding the different types of exit strategies available is crucial for business owners. Your choice will significantly influence your business's legacy, financial gains, and the company's future. The route you choose as a business exit strategy largely depends on three factors:

  • Personal goals
  • Nature of the business
  • Market conditions

Whether you're seeking the highest financial return, wish to keep the business legacy intact, or are keen on a seamless transition, it's essential to tailor your exit strategy business plan accordingly.

The importance of exit strategy choices can't be overstated, as they shape the future of the company and its stakeholders. Let's delve into five common types of succesful exists:

#1: Sale to a strategic buyer

This exit strategy involves selling your company to a larger company, typically operating within the same industry. It is one of the many common exit strategies. The potential buyers are often seeking to expand their reach, incorporate new technologies, or eliminate competition.

This approach is beneficial as it typically offers a premium on the company's market value, given the synergies the buyer might achieve post-acquisition (this is made by a business valuation). If your business exit planning revolves around a quicker exit with potentially higher financial returns, this might be a preferable route in your business operations.

Example: Salesforce acquires Slack

Salesforce bought Slack . This union merged the capabilities of one the world's leading CRM platforms with a pioneering digital communication tool for business.

This strategy was a win-win for both sides, a strategic acquisition that turned out great. Salesforce bought a tool that fortified and diversified their services, while Slack received more resources to expand their vision. It resulted in a successful exit strategy.

#2: Initial Public Offering (IPO)

An IPO is essentially when a company offers shares to the public on a stock exchange. It's one of the most talked-about types of exit strategies due to the promise of significant financial windfall and prestige. However, an IPO faces many challenges. It demands rigorous financial scrutiny, is expensive, and puts the company under the constant watch of shareholders and analysts.

Example: Facebook Goes Public

In its early days, Facebook was a platform limited to college campuses. As it started expanding its user base and introducing novel features, its valuation skyrocketed.

Facebook made the monumental decision to go public, a proper exit strategy for them. Facebook's IPO was one of the biggest in tech history, with shares initially priced at $38. Their IPO helped them raise $16 billion, which gave the company a valuation at the time of $104 billion.

#3: Management Buyout (MBO):

An MBO involves the company's management team buying the assets and operations of the business. It's an attractive business exit plan for entrepreneurs who wish to see their legacy continue under a team familiar with the company's vision and goals.

The key advantage of this strategy is that it ensures a seamless transition, given that the new owners already have an intimate knowledge of the company. However, it often requires the management team to secure significant financing, which could be a potential hurdle.

Example: Dell Goes Private

Dell Computers embarked on a notable transition . In one of the largest management-led buyouts in tech history, the company's founder Michael Dell, together with investment firm Silver Lake Partners, acquired the PC giant and took it private.

The $24.4-billion deal was the biggest leveraged buyout since the 2008 financial crisis. It allowed the company to reorient its strategy and products without the immediate pressures of public stockholders.

Family succession:

Family succession means the ownership and leadership of a company are passed down to the next generation of a family. This allows the founding family to maintain control and legacy while ensuring a smooth transition for the business. It is a common business exit plan.

Example: Walmart stays within the family

A well-known example of family succession is Walmart. Sam Walton founded the retail giant in 1962 and later handed over the reins to his son, S. Robson "Rob" Walton, who served as CEO for several years before transitioning to chairman. The Walton family remains the company's controlling shareholder.

#5: Bankruptcy

Bankruptcy serves as a last-resort exit strategy for businesses facing overwhelming financial burdens. It involves filing legal protection from creditors, allowing the court to oversee the restructuring of debt or the liquidation of assets to repay creditors. While not ideal, bankruptcy can provide a fresh start for the owner and potentially some employees who can be hired by the new ownership if the business is reorganized. It doesn't bring a return on investment, however is a good resource for dying businesses.

Example: Kodak resurfaced

A real-life example of bankruptcy as an exit strategy is Eastman Kodak. The photography giant filed for bankruptcy in 2012 due to struggles adapting to the digital age. Through the process, Kodak sold off assets and restructured its debt, eventually emerging with a smaller focus on digital printing technology.

Navigating business exit strategies with boopos

A well-thought-out exit strategy is essential to preserving your legacy while optimizing value. As you evaluate the examples provided here, the need for tailored support becomes clear.

Boopos can serve as an unmatched ally in your journey to sell your company. Join our marketplace today!

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