I know that exiting a business you own can be emotionally, physically, and mentally taxing for you as an entrepreneur. You want to maximize value, achieve your financial goals, and guarantee a smooth transition. 

My years of interacting with business owners from various industries have shown that it’s not enough to have a vague idea of a business exit; you must know it in-depth. 

My aim is to explore in detail the types of business exit strategies available to you and help you review which is best for you.

Types of Business Exit Strategies

Business exit strategies refer to the methods employed by business owners, executives, and investors to remove themselves from their companies. This is typically done by selling their ownership shares in the company to maximize profits. Exit strategies can also minimize or prevent loss in risky or failing businesses. 

Two men working on their laptops at a table

Regardless of whether you’re looking to leave your business in the near or distant future, it is important for you as a business owner to understand the different types of exit strategies. This way, you know how to use them to maximize your gains from your business. Here are some of the most common exit strategies:

Merger and Acquisition (M&A)

A Merger and Acquisition (M&A) is an exit strategy involving one company buying or merging with another. In an acquisition, you sell your ownership to another company through a cash transaction, stock swap, or a combination of both. The acquiring company then gains control over the acquired company’s assets, operations, and decision-making processes. 

Conversely, a merger occurs when you combine your company with another company to form a new entity. In most mergers, you may still be involved in business operations. However, you lose your ownership and control rights in an acquisition, giving you a clean break from the business. 

Provisions under antitrust laws, such as the Sherman Act and the Clayton Act, regulate mergers and acquisitions to prevent anti-competitive practices.

Pros

Cons

Legacy Exit 

The legacy exit strategy, also known as family succession, involves passing the ownership and management of your business to your children, grandchildren, or other family members. This is typically done through inheritance or a gradual transition process, which allows the successor to gain experience and gradually assume greater responsibilities within the company.

This approach is rooted in the desire to preserve the family’s legacy and values and guarantee the business’s continuity and success. However, for this to happen, business owners must choose someone fully qualified for the job. 

Three people sitting together, each with a notebook and pen, ready to take notes

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Cons 

Initial Public Offerings (IPO)

If you want to see your business trade publicly, an IPO is the way to go. An Initial Public Offering involves selling shares of your company to the public as stock, thereby allowing people who purchase to become stockholders in the company. This strategy is highly favored because it can provide substantial profit for the business.

However, it may not be feasible for small or medium-sized businesses. This is because it comes with many requirements and regulations that could be challenging to meet. 

Provisions under securities laws, such as the Securities Act of 1933 and the Securities Exchange Act of 1934, govern IPOs and public offerings.

Pros 

Cons 

Liquidation

Liquidation is a common business exit plan that involves winding down the company’s operations and selling off its assets. If the business succeeds, this process can be voluntary, and business owners can use the profits to start new ventures. However, if the business is unsuccessful and failing, then this process may be a last resort. 

In this case, any proceeds from the sale are used to clear off outstanding debts. Any remaining funds then go to the owner and any partners or investors. Although it provides a straightforward and quick exit, your returns will likely be minimal in liquidation.

Legal provisions under state laws, bankruptcy laws (e.g., Chapter 7 liquidation), and creditor rights govern liquidation and dissolution processes.

A woman wearing glasses sits at a desk, focused on her laptop

Pros

Cons 

Management/Employee Buy-outs

In an MBO, the management team or employees pool resources to purchase the business from the current owner(s). This strategy can incentivize key employees to remain with the business. It also promotes a smoother transfer of ownership because the employees or management team are already familiar with the business.

That makes it easier for them to transition into more senior roles and take charge of the company’s operations.  

Pros 

Cons 

Sell Stakes to an Investor or Partner

Selling your stakes as an exit strategy involves transferring a portion or the total of your ownership in the business to an existing partner, co-founder, or investor. This strategy is particularly great if you’re not a sole proprietor, as it allows the business to run as usual, with little or no changes to its operations or structure. 

Pros

Cons 

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Acquihire

If you have a highly-skilled workforce, and you’re looking for a way to guarantee they will be looked after, then an acquihire may just be your strategy. Short for “acquisition-hire,” it occurs when a larger company acquires a smaller company primarily to gain access to its skilled and talented employees rather than its products or customer base.

In an acquihire, you have the upper hand and can negotiate favorable terms that will benefit you and the business. 

Pros

Cons 

Related Questions 

What Are Business Exit Strategies?

Business exit strategies are methods that business owners employ to remove themselves from their companies. An ideal business exit strategy should maximize the value of the business for greater financial gain, minimize/prevent losses, and guarantee a smooth transfer of ownership. Some common exit strategies include IPO, legacy exit, merger and acquisition, liquidation, and acquihire.

How Do I Choose the Right Exit Strategy for My Business?

To choose the right exit strategy for your business, you must consider various factors, including your financial goals, personal preferences, and current market conditions. A liquidation, acquisition, or sale to a partner or management may be best if you want a clean and quick exit. On the other hand, if you want to maximize value, consider an IPO. 

How Can I Prepare My Business for a Successful Exit?

To prepare your business for a successful exit, you should focus on maximizing its value, strengthening its financial performance, and streamlining its operations. You must also get the business affairs in order, including finances, utility and design patent rights management, tax, and documentation. Additionally, take steps to make sure that the business can thrive without you in the picture.

Conclusion 

Understanding the various business exit strategies is important for any business owner who wants to maximize business value and have a successful exit. To determine the best exit strategy for you, assess the pros and cons of each option. Consider how each strategy can align with your personal and financial goals to give a favorable result.