Business Exit Strategy: All That You Need to Know About

Business Exit Strategy: All That You Need to Know About

What do you think when you read or hear the word exit? Exit means leaving a place. A term that is crucial in the world of business and finance is a business exit. 

Business exit means an exit plan to sell a company or ownership to another company or investors. Business Exit Strategy or a plan that an entrepreneur utilises. 

Business exits are done in cases when the company is not working well enough to provide sufficient profits. Hence, one applies the strategic plan of business exits to avoid those losses. 

An exit strategy, sometimes known as an "exit plan," enables the entrepreneur to reduce losses if the business is unsuccessful. 

An investor, such as a venture capitalist, may also utilise an exit strategy to prepare for a cash-out of an investment.

There are times when the company is not working well. And this can be seen and recognised in the initial phases of a company's work. 

In such cases, going for the Business Exit Strategy is useful. Now you may think as to why to opt for such a strategy in such an early stage. 

That's probably because of the fact that it will save you from any further losses. You'll have an idea of whether your business can work or not. 

Moreover, your business can be amazingly profitable when given in the right hands. 

Why does business exits?

There are numerous reasons when it comes to business exits. There are factors as to why people opt for business exit plans. 

The reasons for the same can be understood as mentioned below:

1. IPO Ready

Business exits are not always because of the fact that the company is under loss. It can also be executed wherein the company wants public investors for their business through an IPO. To execute this, your company needs a large and diversified user or customer base, a stellar team, growing revenues, and profitable financials. Also, you need to be aware of the fact that IPO involves effort and expense. In this case, one should go for business exit only when one can deal with the costs that it comes with. 

2. Market uncertainty 

The second reason that can lead to business exit is market uncertainty. There are times when successful business owners are deprived of cash because of being uncertain about future market developments. Also, there are instances when changes in the rules and regulations of businesses happen. This can also affect a business adversely. Thereby leading to the decision of business exits. 

3. Business failure 

Another major reason for business exits is the failure of a company's business. If you continue to stabilise your business, there are high chances that you may lose a lot of money. Henceforth, if you have been trying to stabilise your business for a long time, it is wise to quit.  

4. Boredom with routine 

Some entrepreneurs get bored of a nine-to-five job, which is why they wish to enter the business world, forgetting that in businesses, one needs to work more than the usual hours. Also, one may become bored of business too because of the operational challenges that it comes with, thereby leading to the decision of business exits. 

Types of Business Exits

The strategy of business exits can be of several types. Some of the major business exit strategies include the following:

1. Merger & Acquisition Exit Strategy (M&A) Deals 

Merger or acquisition is one of the business exit strategies. It is an attractive option for start-ups and entrepreneurs. In this strategy, you may sell your business to another company to increase the company's geographic footprint, decrease any competition, and thereby acquire talent. 

2. Selling your stake to a partner or investor. 

This is one of the amazing business exits strategies. You can sell your stake to a partner or venture capital investor. This business exit strategy is helpful if you are not a business owner. In this, the person whom you are selling your stakes is referred to as a friendly buyer. 

3. Family succession 

In this business exit, the concerned person with the company exits the company and passes down the company's responsibilities to their child or another family member. This type of business exit is also called a legacy exit. This business exit strategy is very helpful as the family member who joins the company is well versed with the business and knows how to handle it.  

4. Acquires 

This business exit strategy is also very crucial. This exit strategy helps you and your employees a more certain sustainable and successful future in the business with the company. 

Some of the other business exit strategies include the following:

  • Management and employee buyouts (MBO)
  • Initial Public Offering (IPO)
  • Liquidation 
  • Bankruptcy 

In conclusion, business exits are done in the cases when the company is not working well enough to provide sufficient profits. 

Hence, one applies the strategic plan of business exits to avoid those losses. An exit strategy, sometimes known as an "exit plan," enables the entrepreneur to reduce losses if the business is unsuccessful. 

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Conclusion

An investor, such as a venture capitalist, may also utilise an exit strategy to prepare for a cash-out of an investment. 

Business exits are executed because of a lot of reasons which are mentioned and explained above. 

Also, business exits are of several types, which include merger and acquisition exit strategy (M&A) deals, family succession, liquidation, bankruptcy, initial public offering (IPO), management and employee buyouts (MBO) and many more. 

FAQs

  • When should a business owner begin planning their exit?

Even if they want to continue at their company for a while—even for the next ten years or more—it is advised that business owners begin thinking about exit planning immediately. That's because they should start implementing their exit strategy between three and ten years before they decide to leave their company.

  • What sort of issues are involved when it comes to business exits?

Quitting your own business is not easy. This is a process which is indeed time-consuming and comes with a lot of issues such as tax planning, business due diligence and evaluation, sales versus succession, and other exit strategy issues. 

  • What is the benefit of exit planning?

The largest benefit of having a business exit strategy is that owners can leave their company on their terms with the least amount of losses or liabilities and the most profits. The bottom line is that business owners have probably put a lot of effort into developing their companies, and business exit strategies can assist them in safeguarding their investments, hard work, and interests.

  • What occurs if business owners don't create exit strategies?

Business owners risk being compelled to give up some of their departure-related goals and objectives if they don't have an exit strategy in place. Such tradeoffs can be costly, demanding, and infuriating in more constricted circumstances. And it's all preventable.

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