
Having an exit strategy can sound negative, however, it is practical to plan for an exit. Many people don’t think about their business going in the wrong direction and this is an easy mistake. This article will cover all you need to know when it comes to exit strategies.
What Is An Exit Strategy?
Simply put, they are plans where an entrepreneur sells their ownership in a company. They can be executed by investors, traders, business owners or venture capitalists and there are plenty of reasons why they are used.
Points To Consider |
What your financial situation is, as well as what your expectations will be afterwards. |
If you have creditors or investors, how will they be compensated and how will this look post exit. |
How long you plan and expect to be part of the business. |
Why Are Exit Strategies Used?
Business exit strategies are plans to sell ownership in a company, but what exactly would be the reason for using them? Well, below are some of the popular reasons they are created:
- If there are significant changes in market conditions, the business may shut down.
- To limit losses, selling the unsuccessful company can be an option.
- To give up control or to reduce ownership in a company.
- Sometimes, the before set profit objectives have been met.
- To completely close down a non-profitable business.
- To sell an investment or a company.
What Are Examples Of Exit Plans?
With the examples below, there are advantages and disadvantages to each. They will be individual to your circumstances, so it is recommended to research each option and decide which will suit your needs the best. Some of the most common examples include:
- Selling all your current shares.
- Selling the company outright.
- Going through an IPO (initial public offering).
- Selling your business on the open market.
- Passing the business on to a family member or friend.
- Liquidate all the assets, marking down the prices of inventory to sell it fast.
- Mergers or acquisitions, selling the controlling interest in the business, but may still having a small role.
Why Are Exit Strategies Important?
Having a plan of action for exit may look counter-intuitive or even negative. However, it is a realistic and practical action to take. It is important to consider these plans, even if you don’t wish to sell your business. So, what reasons make exit plans important?
Economic recessions – recessions can have huge impacts on your business and can often be unexpected. Planning for the worst isn’t being negative, but being cautious and wise.
Family crisis’s or health issues – hopefully, this will never be the case, but for some businesses, family crisis’s or personal health issues can cause significant effects.
Unexpected growth – your company may see a huge rise in profits, meaning bigger players could look at acquiring your business. You may not have immediate intentions of selling your company, but it is wise to have a plan in place if it does happen.
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