Business Exit Strategy

AG (Aktiengesellschaft)

What is a business exit strategy?

A business exit strategy is an entrepreneur’s strategic plan to sell his property in a business to investors or to another business. An exit strategy gives the owner of a business a way to reduce or liquidate their stake in a business and, if the business succeeds, to make a substantial profit. If the business is not successful, an exit strategy (or “exit plan”) allows the entrepreneur to limit losses. An exit strategy can also be used by an investor such as a venture capitalist to plan for the withdrawal of an investment.

Exit strategies should not be confused with exit strategies used in the securities markets.

Understanding the exit strategy

Ideally, an entrepreneur will develop an exit strategy in his initial business plan before going into business. The choice of exit plan can influence business development decisions. Common types of exit strategies include initial public offerings (IPOs), strategic acquisitions and management buyouts (MBOs). The exit strategy that an entrepreneur chooses depends on many factors, such as the degree of control or involvement (if any) he wants to keep in the business and whether he wants the business to continue operating. in the same way or is willing to see it change. go ahead as long as he is paid a fair price for his share of ownership. A strategic acquisition, for example, will relieve the founder of his responsibilities as owner, but will also mean surrender of control. IPOs are often seen as the holy grail of exit strategies, as they often bring with them the highest prestige and the highest earnings. In contrast, bankruptcy is considered the least desirable way to leave a business.

A key aspect of an exit strategy is business valuation, and there are specialists who can help business owners (and buyers) examine the finances of a business to determine fair value. There are also transition managers whose role is to help sellers in their exit strategies.

Key points to remember

  • A business exit strategy is an entrepreneur’s strategic plan to sell his property in a business to investors or to another business.
  • Exit strategies include acquisition, merger, initial public offering or closing of operations.
  • . An exit strategy gives the owner of a business a way to reduce or liquidate their stake in a business and, if the business succeeds, to make a substantial profit.
  • If the business is not successful, an exit strategy (or “exit plan”) allows the entrepreneur to limit losses.

Business exit and liquidity strategy

Different exit strategies also offer business owners different levels of liquidity. Selling the property through a strategic acquisition, for example, can offer the greatest amount of liquidity in the shortest possible time, depending on the structure of the acquisition. The attractiveness of a given exit strategy will also depend on market conditions; for example, an IPO may not be the best exit strategy during a recession, and a management buyout may not be attractive to a buyer when interest rates are high.

While an IPO will almost always be a lucrative prospect for company founders and start-up investors, these stocks can be extremely volatile and risky for ordinary investors who will buy their shares from early investors.

Business exit strategy: which is better?

The best type of exit strategy also depends on the type and size of the business. A partner in a medical office could benefit from the sale to one of the other existing partners, while the ideal exit strategy for a sole proprietor could simply be to earn as much money as possible and then close the business. . If the company has several founders or if there are significant shareholders in addition to the founders, the interests of these other parties must also be taken into account in choosing the exit strategy.

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