Key Takeaways
- Developing an exit strategy from the beginning puts you in the driver’s seat to decide what happens. It better prepares you to handle unforeseen industry shifts with agility and assurance.
- Align your exit strategy with your business goals. Whatever you decide—sell, merge, shut down, or another route—ensure your exit strategy reflects your ultimate business objectives and personal ideals.
- Take the time to do a deep dive into your business’s economic viability, future growth prospects, and the landscape of the market before pursuing a particular exit strategy.
- Preparing accurate financial records, understanding your business valuation, and ensuring legal compliance are essential steps to maximize your business value before exit.
- Consistent, transparent communication with employees and other stakeholders during the transition process will go a long way in reducing disruption and preserving goodwill in your organization.
- If you determine that exiting isn’t the right move today, prioritize long-term, profitable growth. Build the capacity of your business so that you’ll be better positioned to take advantage of future opportunities.
To weigh whether you should sell, merge, or shut down, you want an exit plan that fits your goals and matches your business shape. Each option involves different processes, challenges, and consequences for owners here in the U.S.
Selling provides you with immediate cash and an opportunity to start anew. Alternatively, a merger can allow your brand to live on and save employees’ jobs.
While a shutdown provides you with the most control, it usually involves greater financial and legal ramifications. Whatever path you decide to take, it should align with your financials, staff, and position in the marketplace.
Here in this exit strategy guide, you have an opportunity to determine how to narrow down your options with concrete information and actionable next steps. Then, figure out the path that best aligns with what you value most, whether that’s your time, your wallet, or something else entirely, going forward.
What Is A Business Exit Strategy?
A business exit strategy is your plan for stepping away from your business, whether you sell, merge, or shut down. It determines how you transition, what your share of the exit proceeds ultimately does, and how your vision is realized. As a business owner, you want a plan that works for your needs, protects your capital, and fits with where your business stands today.
No matter why you started your business, a well-thought-out business exit plan is the key to any savvy business strategy. Don’t treat your exit as an afterthought – plan early!
The common owner and investor exit strategies include selling to a competitor, selling to a partner, merging with another company, or taking the business public (going IPO). Other small business owners sell to a trusted party, such as a family member or business associate. Some entrepreneurs choose to sell the business to a strategic buyer.
Some transactions can close within weeks, while others take multiple years to complete. This is even more critical if your business is complicated or if the current market dynamics are difficult. For investors, there are hard and fast guidelines, such as the 1% rule, or predetermined timeframes to divest their interest.
As you can imagine, either option has its advantages and disadvantages. Think about the overall health of your business, what your long-term financial goals are, and how many individuals are involved in the exit.
Whether you plan to build your brand, maintain control, or simply receive the best possible valuation, your strategy matters. Others are simply looking for the increase in prestige that comes from a major strategic acquisition.
Or they’re just more personally motivated by preserving jobs for their staff or ensuring that their credit doesn’t go bad. Whatever your objective, the right exit strategy will put money in your pocket.
Not only that, but it can also increase your revenue and reach more customers. Even so, it carries a fair amount of risk, and you must regularly revise your plan as circumstances shift.
Why Every Business Needs An Exit Plan
Having an exit plan does not mean you have to have already decided your journey is over. It’s a roadmap that allows you to play offense, not defense, stay flexible, and reduce risk. Eventually, every owner will have to make a decision—sell, merge, or close.
Understand that no two businesses are the same. No matter what stage your business is in, your plan should align with your goals and values.
Gain Clarity For Decision-Making
Having a defined exit plan provides you with an outline. Gain clarity for decision-making. Will you maintain control or hand it over to someone new?
What is your timeline—do you want out in three years, or can you last five years from now? With a plan, you can objectively analyze your numbers, your team, and your market.
So you receive data, not just estimates. For instance, if you own a solid lease, potential buyers will value your business more highly. A problematic lease could kill a sale in its tracks.
Prepare For The Unexpected
Prepare for the unexpected. You can’t expect to be able to plan all contingencies. Unexpected illness, sudden changes in the market, or the implementation of new legislation can make decisions necessary in a hurry.
That’s why you need two plans: one for when you want to step out, and one for when you have to. Don’t wait until you’re ready to cash out to start planning. Without a backup, you’re suddenly faced with the unexpected.
Align Actions With Long-Term Goals
Don’t continue to operate your business as though you’re going to pass it down through the generations. Prioritize long-term growth and value.
Keep your exit plan up to date, checking it every 3-5 years. This allows you to identify new opportunities or address deficiencies.
Boost Confidence During Transitions
When you’re prepared with a plan, you’ll be confident. You’ll be ready to engage with potential buyers or partners based on facts, not fear.
You’re more confident as you make the transition.
Maximize Your Business Value
A solid exit plan will get you to the finish line faster and preserve more of your value, too. Maximize Your Business Value.
Start early. The reality is that most exits require years, not months.
Matching Your Exit To Your Goals
When you first begin to seriously consider exiting your business, think about what you want to do after you leave. Think about what you want, not just for your business, but for your life outside of work, especially financially. Whatever your exit strategy may be, your plan must be tailored to your goals.
Or maybe you’re just looking for a big exit. Or perhaps you want to ensure that your efforts continue under someone you have faith in. The right exit path helps you move from years of hard work to your next chapter without leaving loose ends. This section breaks down the most common exit options, what they mean for you, and what you need to keep in mind as you weigh your choices.
1. Selling Your Business Outright
If you’re looking for a clean break, this is the most typical exit. It enables you to create value and ultimately get paid for everything you’ve built. With a sale, you turn over control, not just to your employees, but often to your competition or perhaps an investor or private equity group.
This option is ideal if your business operates smoothly in your absence, has transparent books, and consistent earnings. You get a cash payment, or it’s structured over time. Then you can apply that cash toward your next big build, retirement, or new startup!
Consider your “why” as the first step. You could achieve much more personal freedom from the day-to-day with this exit. If you’ve invested decades of blood, sweat, and tears, this might be the best option for cashing out. You still must operate your business prudently until the deal closes.
Buyers are looking for a business that projects that it is ready to go the distance. Second, you should have a post-sale plan, too. What many owners don’t realize is that the sudden change can be especially difficult if they don’t have a plan for their next steps.
2. Merging For Strategic Growth
In an acquisition, the other company simply buys your business and reaps the profits. This can be a strategic means to generate innovation, attract new talent, or expand your footprint. Successful mergers are ones in which each company brings something to the table that the other one needs.
This might be a new market, breakthrough technology, or increased customer demand. If you’re not fully ready to fade away, try a merger. In this manner, you can remain actively engaged, see your work grow to scale, and help carry the risk.
You may find yourself with an executive position in the merged entity or an equity position in the enlarged enterprise. This is a common route taken by many local firms in the technology, healthcare, and retail sectors. Maybe they want to grow internationally or win new contracts.
3. Passing To Family Or Management
Other business owners wish to keep their legacy near home. Passing the torch to family or key management means the business continues under people who know your values and style. This is a choice that requires careful planning.
Besides the adjustment of you having to train your successor and fair terms being set, often legal minds need to be involved to avoid litigation. For those in family businesses, knowing the successor is ready can be a great relief. Ensure you gauge their preparedness to carry out what’s to come.
Passing to Family or Management: Management buyouts are slightly different. Here, your best staff, working collaboratively and often with the support of external funders, pool resources to purchase a buyout. While this transition can be easy, it still requires strong contracts and an exit plan on your part to ensure you can step away.
4. Considering An Acqui-hire Scenario
An acqui-hire is when a larger company purchases your company primarily to acquire your talent, as opposed to your product or service. This is often the case in tech and creative industries, where talent is a scarce resource. If your business has a great, tight community of talent, you’re sitting pretty.
Even if your product has missed the boat, there are still opportunities to capitalize on the value of what you’ve created. You get a nice payout, and your employees are placed in new roles—often with improved benefits or work. This route can sometimes be faster and less agonizing than a complete sale.
Ensure your team is aligned behind the decision, and be sure to keep the new owner accountable for their commitments.
5. Exploring An Initial Public Offering (IPO)
An IPO is the largest growth step you can take. If your business is stable, fast-growing, and you want to raise a lot of capital, an IPO can open doors. Your company ultimately goes public on a stock exchange, and you sell stock shares to the general public and institutional investors.
This approach raises money, enhances your visibility, and allows you to realize value gradually. The downside is that IPOs require rigorous public reporting and often introduce new investor pressures. In return, you give up a good bit of control for the opportunity to scale large.
In North America and Europe, IPOs are usually limited in scope to the tech sector, biotech, and large consumer brands. You have to balance the cost, time, and risk with the upside.
6. Liquidating Assets And Closing Doors
In certain circumstances, the best move may be to liquidate assets—equipment, inventory, property—and shutter doors. This is often the case if the business is unable to continue or if you prefer a fast, clean break. Liquidating can be quick, but you won’t maximize your value.
You will often be forced to sell at a discount because buyers know you are trying to exit. You have debts to pay, employees to pay, and taxes to deal with. This can be difficult if you are personally connected. In some cases, this is the most prudent decision.
Having a transparent plan in advance prevents the process from turning chaotic and arbitrary.
7. Navigating Bankruptcy Proceedings
If debts become overwhelming and the business is beyond the point of recovery, bankruptcy could potentially be an option. This legal process allows you to negotiate settlements with creditors and wind down in an organized manner. In the best-case scenario, you can use bankruptcy to restructure and maintain operations, but more often than not, it requires a complete exit.
While bankruptcy laws protect you from the effects of bankruptcy, including your staff, the process is lengthy and will have lasting impacts on your credit and brand. It does provide you with an outlet to find closure and to move forward.
You will want not only good advice but a deep appreciation of your rights and responsibilities.
Key Factors Shaping Your Exit Choice
Deciding to sell, merge, or close your business isn’t an easy spur-of-the-moment choice. It’s an incremental process that is informed by your priorities, your firm’s metrics, and the external environment. Each route offers different opportunities and hazards.
Whatever your exit option, choosing the right one takes equal parts objective information and subjective values. Some of the major factors that shape your exit choice are. We’ve unpacked them with practical, real-world examples to show you what’s truly important as you plan your next move.
Assess Your Financial Health Metrics
Start with your numbers. Your company’s balance sheet, cash flow, and profit margins say more about your options than any outside advice. If your revenue has been steady and your debts are low, you sit in a strong spot if you want to sell.
Buyers look for healthy books because they want a business that will not bleed cash after closing. If your numbers show losses or debts, selling may bring low offers or none at all. In these cases, merging with a stronger player or shutting down could make more sense.
You need to look at your assets, both hard (like property or equipment) and soft (like brand value or customer list). If your business owns real estate or unique patents, those can boost your sale price or make you a good merger candidate.
If most of your value is in your team or your know-how, the exit will need to treat your staff and their skills with care.
Understand Current Market Conditions
Understand Current Market Conditions: What’s at play in your market today? If you’re in a growth industry, strategic buyers can’t wait to get their hands on quality firms. There is still an opportunity for very good returns by selling now.
In a flat or contracting market, buyers are unwilling to commit, and prices begin to fall. A black swan event, such as a large technological shift or pandemic, can turn the market upside down. Understand Current Market Conditions. That’s why timing is everything.
For mergers, market fit is everything. If your competition is outpacing you due to consolidating, merging can help you stay competitive. Or, the right merger proposal might surprise you.
External forces – be it changes in your industry or a major global disruption – can catalyze this. Focusing on the big picture, staying informed about trends in your industry helps you stay prepared. When that perfect opportunity comes along, you’ll be able to move fast!
Evaluate Your Growth Potential Now
If your business is not still growing, even without you in the picture, then selling now is a very wise decision. Buyers need to know that there’s space for new products, increased customers, or larger markets.
If growth has stalled or costs are rising, a merger may help you tap into new strengths and keep the doors open. If your company has hit a dead end with no obvious future avenues for expansion, weigh the option of going out on your terms. This deliberate act prevents you from succumbing to a painful fade.
Again, being honest about your skills comes into play. If you’re not prepared to grow your business, look at new ownership or partners. They have the potential to bring a new wave of passion and creativity to your company.
If you don’t know your growth plan or don’t want to operate the business anymore, it may be time to move on. It opens the door for new ideas and innovation.
Consider Your Industry Landscape
Consider Your Industry Landscape. Each industry has its own set of regulations and requirements. In the tech industry, where change is rapid and acquire-or-be-acquired is the motto, mergers and acquisitions are a regular occurrence.
Trends in retail and food are ever-evolving. When the math fails to make sense anymore, an orderly wind down turns into a prudent exit strategy. Consider your industry landscape.
Whether it’s new legislation, advancing technology, or the arrival of new competitors, if change is indeed coming, your exit strategy should account for the changed landscape.
For instance, in Europe, stricter data privacy regulations have altered the way that tech companies operate. Across North America, new e-commerce trends are radically transforming the retail environment and changing the landscape.
Aligning with these changes ensures that your plan remains relevant and current.
Factor In Personal Goals And Legacy
What do you want your legacy to be in terms of what your business will be known for once you’re gone? Some owners are motivated by the desire to see their brand continue to grow even if they’re not the ones steering the ship.
Still others prefer a clean break or must leave for reasons such as an unexpected health crisis or family emergency. If your goal is to protect your team or keep your mission alive, a merger or sale to a like-minded buyer works best.
If you prioritize a quick, easy exit above all else, liquidation may be the way to go. How much risk are you willing to take on? Your risk tolerance is a huge factor.
If you’re not afraid to poke the bear a little bit, explore selling or merging. In a rising market, this can be a more profitable strategy. If peace of mind and reduced rigmarole are your goals, a thoughtful phase-out allows you to be more intentional.
Think About Stakeholder Expectations
You may feel lonely out there, but you are not alone in this. Your employees, your investors, and even your customers are all going to be watching very closely to see what happens next.
If you have external investors, they will exert tremendous pressure to sell to the bidder that has the most favorable return. Your employees might be more focused on career security, which might indicate a desire to merge with an established company.
Even your suppliers and clients have their expectations, which might just strongly influence your decisions. That’s why it’s important to engage with each stakeholder group as early and often as possible.
Clear plans for what happens after you leave—like job offers or transition support—smooth out bumps and keep your exit on track.
Weigh Your Company Culture Fit
Don’t underestimate your company culture fit. Company values and culture are buzzwords right now. In a sale or merger, a bad culture fit can destroy an otherwise ideal transaction.
If your company has an innovative, flexible culture, it’s going to be very hard to sell to a bureaucratic, top-down buyer. This type of tactic could alienate your most creative employees.
When considering your exit, look for alternatives that will maintain your culture. Consider ways to make the transition more comfortable for your people.
A shutdown, though challenging, provides you with an opportunity to dictate the narrative and care for your employees. Some owners wind down over time to give staff a soft landing, while others help key team members find new roles before the doors close.
Preparing Your Business For Exit
Setting a business exit plan date isn’t enough; it requires a detailed strategy that outlines your objectives and schedule while considering the financial implications. This approach offers many business owners more choices, less stress, and a chance for better value during a strategic acquisition or eventual sale.
Start Planning Years Ahead
Start planning years. Build value before you sell. This allows you to address weaknesses in your business operations, increase earnings, and choose your successors.
Once you have a better understanding of your priorities—control, cash, legacy—you can make more informed choices without the urgency to pivot. Getting an early start lays the groundwork for a successful exit. This is particularly useful if you’re looking to set up an Employee Stock Ownership Plan (ESOP) for your staff.
Get Your Financials In Order
Accurate, current, clean books are essential. Consider hiring an outside auditor to provide an independent review of your financials every few years. This will go a long way in building buyers’ or partners’ trust.
Ideally, you want to prove consistent sales, little debt, and definitive histories of growth. These moves prepare you to move quickly when the right exit opportunity arises.
Understand Your Business Valuation
Understanding your business valuation is crucial. Knowing what your business is worth informs your decisions. A professional valuation takes into account factors such as your cash flow, your assets, and your position in your market.
Conducting these evaluations every three to four years allows you to track trends and identify areas of improvement. As several studies have found, strong teams and smooth systems can increase your value by 20-30%.
Address Legal And Compliance Issues
Unaddressed legal risks can deter potential buyers due to their liability concerns. Review contracts, employee handbooks, leases, permits, and other relevant paperwork to ensure they’re up to date and in good standing.
Address legal and compliance issues by cleaning up old lawsuits or legal disputes. All of this groundwork leads to fewer stumbles as you go along.
Strengthen Operations And Management
A business that can operate smoothly without you is an attention grabber. Strengthen operations and management by eliminating inefficiencies.
Establish transparent processes to guide day-to-day operations. Ultimately, these changes create a more stable business that will be easier to pass on, merge with, or sell.
Navigating The Transition Process
When you’re ready to exit your business—whether you intend to sell, merge, or close up shop—you’ll want a well-defined plan. Successful transition process navigation takes patience and intentionality. Every decision you make impacts your team, your workflow, and your future vision.
By understanding where the magic happens, you not only maintain that magic but also prevent it from falling into dangerous pitfalls.
Communicate Clearly With Employees
Clear, honest communication with your employees goes a long way to preserving trust. If the new owner knows the team and how things run day to day, your employees will settle in faster. When you invest in the new owner, the impact on the team is palpable.
This support sends a powerful message to them that progress is indeed underway. Communicating uncertainty or participating in previous grievances can damage the whole conversion process. Avoid negative space.
Protect the value you’ve built by avoiding a negative and defensive posture.
Minimize Operational Disruptions
The exceptional leaders plan under the assumption they are there to stay, and so they don’t lose focus. Even as you process the exit, continue to prioritize the immediate work and future goals. Put a cap on how much time you’re going to spend on exit planning—ideally, 30 minutes or less a day.
This helps you stay focused and prevents the lights from going out on your operation. Having an agreed-upon plan from the start means you’re better positioned to avoid headaches down the road for yourself and for everyone else involved.
Avoid Common Exit Pitfalls
Gap analysis — the identification of needs and resources to help fill them — becomes foundational. It’s a great tool to identify what buyers may be concerned with, allowing you to address any concerns before they become an issue.
Spend time identifying soft spots, especially if leaving isn’t your decision to make. This reduces risk to both parties and fosters a deeper level of trust.
Preserve Business Value Carefully
It’s all too easy for many business owners to backslide and quickly lose that value. We know the selling process can sometimes take years, but don’t lose focus on what’s important. Continue to speak out on behalf of new owners and create value right up to the last minute.
What If Exiting Isn’t Right Now?
You may realize that exiting isn’t right now after all, but focusing on your business exit plan can still determine your company’s value and position you for a lucrative exit down the road. Instead, shift your attention to creating a brighter future for many entrepreneurs.
Focus On Sustainable Growth Instead
If you plan to stay on for five years or more, start by building a team that runs without you. This change allows you to step away from the minutiae of daily operations to think more about your greater, long-term objectives.
Focus the remaining 5% on strategic work, such as defining your firm’s future vision or identifying new lanes for growth. When you think this way, your business doesn’t stop moving if you exit someday.
It further establishes confidence among strategic partners and buyers who appreciate consistent executive direction and wise foresight. You’ll identify strengths and gaps much earlier and be able to address concerns before they manifest into crises.
Reinvest For Future Opportunities
This is the time to reinvest in your talent and business. Whether you go bigger on tech or make smaller moves to enhance the rider experience, all of these things will help to maximize long-term value.
Consider a business valuation from early on. This gives you a good idea of your company’s fair market value. It should steer your actions over the next two to five years.
If you identify an asset gap, don’t delay, act now. Continue to grow and scale until your eventual exit corresponds with the level of life-changing money you seek.
Adapt To Market Changes Proactively
Keep an eye on what’s happening both in your area and in your sector. Outside forces—such as a tech disruption or a market downturn—can make today the wrong time to pull the plug.
Make five-year to seven-year plans, but stay flexible and adapt when the market dictates that a new path is called for. Be realistic about how much you’ll require for retirement and at what age you plan to exit.
That’s how you keep yourself prepared to make your move at the right moment.
Making Your Final Exit Decision
Moving on from your business is a multi-step process that requires thoughtful execution. That takes frank discussions about what you want to achieve. Preparing to sell, merge, or wind down can be a lengthy and complicated process.
It’s realistic for most owners to plan on the entire exit process playing out over three to five years. That timeline can change if your company is complicated or just not quite ready for a handoff. If selling is your intention, a longer lease term offers potential new buyers stability, as newer leaseholders may feel less secure.
This not only makes your business more attractive, but it lowers the perceived risk. This is particularly the case in places like New York and London, where the reality of high rent and a high turnover is prevalent. It’s just as applicable in any city or suburb where property is competitive and expensive.
Selling a family business or a one-person operation is difficult for many. These arrangements are especially dependent on the proprietor’s daily hustle and coffee shop ties to the owner’s hometown. This can scare off potential buyers who are looking for a business that runs on its own.
Mergers and acquisitions or going public through an initial public offering (IPO) involve intense months of preparatory work, due diligence, audits, and reams of legal documentation. Partner buyouts and small business sales are often transaction paths that can happen very quickly. This is true only when contracts are unambiguous and both parties are willing to start.
There is no perfect solution, or one-size-fits-all prescription. Think about what you want in the long term for your business, your financial objectives, and how much control you wish to maintain. Would you prefer to receive all of your money at once, or a regular income every month for life?
Avoid complacency with your exit plan—markets change, and what’s working today may not be effective a year from now.
Conclusion
To figure out which of these options is best for you, you must first take stock of your situation and your goals. Perhaps you’re dreaming of the day when you can cash out and sell to an international juggernaut based in New York. Perhaps you wish to see your local production increase and connect with your brand, surviving through a merger. Perhaps you simply want to shut down operations and pursue other ventures. Each transition comes with a new learning curve, new challenges, and a new success story. From application consideration, your goals steer the ship. Your goals, your team, and your industry—these all determine what the right move is for you. Consult with an expert, review your documents, and listen to your instincts. Check out our extensive resources for clear, practical guidance on organizing your exit strategy. We’ve produced guides for each step that will further simplify and clarify the process.
Frequently Asked Questions
1. What Is The Best Exit Strategy For A Small Business In The U.S.?
What exit strategy best suits many small business owners in the U.S. today? Selling provides an opportunity for immediate financial gain, while merging can support continued growth through strategic partnerships. Shutting down is a last resort when the business can no longer survive.
2. How Do I Know If I Should Sell My Business Or Merge?
If you’re looking for a lump sum payment and a clean break as part of your business exit strategy, selling is the way to go. However, if you or your organization are aiming for future engagement and access to new markets or expertise, a strategic acquisition or merger can be the more advantageous option.
3. What Are The Key Factors To Consider Before Exiting My Business?
Consider your desired financial outcomes, business valuation, and market dynamics while planning your business exit strategies and succession.
4. How Long Does It Take To Exit A Business?
How long does it take for many business owners to execute their business exit strategies effectively?
5. Can I Prepare My Business For Sale Or Merger While Still Running It?
Yes. Many business owners can get in better financial order, achieve operational efficiency, and establish a management team without jeopardizing their business performance.
6. Is Shutting Down My Business Ever The Best Option?
Yes, if the business can’t recover or sell for a fair price, many business owners may find that shutting down is a strategic move to protect their financial standing and allow them to move on faster.
7. What Happens If I’m Not Ready To Exit My Business Yet?
What if I’m not ready to exit my business yet? Many business owners find that having a solid business exit plan helps them be better positioned to seize opportunities or address challenges that arise down the line.
Plan Your Future With A Strategic Business Exit Plan
Exiting your business successfully requires more than timing—it demands a clear, strategic roadmap. Joel Smith, the visionary behind Clear Action Business Advisors, specializes in guiding business owners through effective exit planning strategies tailored to their goals. With Joel’s expert insight, you’ll gain more than just a plan—you’ll receive a personalized exit strategy designed to preserve value, maximize returns, and ensure a smooth transition.
Joel’s role as your trusted advisor means you’ll be equipped to navigate complex decisions with clarity and confidence. Whether planning to sell, transition to new leadership, or retire, his thoughtful approach will help you avoid common pitfalls and seize every opportunity for a successful exit.
Don’t leave your future to chance. With Joel Smith by your side, you’ll build a legacy beyond your business. Reach out today and take the first step toward a well-prepared, profitable exit.
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