Exit Strategy

An exit strategy does not matter if the intervention strategy is flawed. Exit strategies should be considered while other objectives are being realized, not before. If you ask most politicians what an exit strategy is, they will look at you blankly, because they consider the answer obvious: a plan to bring American troops home from some mission abroad.

An exit strategy is a contingency plan that is executed by an investor, trader, venture capitalist, or business owner to liquidate a position in a financial asset or dispose of tangible business assets once predetermined criteria for either has been met or exceeded.

An exit strategy is a means of leaving one's current situation, either after a predetermined objective has been achieved, justifying premises or decision makers for any given operational planning changed substantially, or as a strategy to mitigate imminent or possible failure

In business an exit strategy is a means of leaving one's current situation, either after a predetermined objective has been achieved, justifying premises or decision makers for any given operational planning changed substantially, or as a strategy to mitigate imminent or possible failure.

A business exit strategy is an entrepreneur's strategic plan to sell his or her ownership in a company to investors or another company. An exit strategy gives a business owner a way to reduce or liquidate his stake in a business and, if the business is successful, make a substantial profit.

An exit policy refers to the right or ability of an industrial unit to withdraw from or leave an industry or in other words to close down. The proposal to introduce an exit policy was first mooted in 1991 when it was felt that without labour market flexibility, efficient industrialisation would be difficult to achieve.

Arguably one of the most important aspects in selling your business is when to exit. Poorly timing your exit strategy can be the difference between a good and bad deal.

Ideally, an entrepreneur will develop an exit strategy in her initial business plan before actually going into business. The choice of exit plan can influence business development decisions. Five Smart Exit Strategies:

Merger & Acquisition (M&A). This normally means merging with a similar company, or being bought by a larger company. This is a win-win situation when bordering companies have complementary skills, and can save resources by combining. For bigger companies, it's a more efficient and quicker way to grow their revenue than creating new products organically.

Initial Public Offering (IPO). This is the preferred mode, and the quick way to riches. Selling the company to a strategic acquirer, or recapitalizing and selling the firm to the management team, also known as a management buyout.

Sell to a friendly individual. This is not an M&A, since it is not combining two entities into one. Yet it's a great way to "cash out" so you can pay investors, pay yourself, take some time off, and get ready to have some fun all over again. The ideal buyer is someone who has more skills and interest on the operational side of the business, and can scale it.

Make it your cash cow. If you are in a stable, secure marketplace, with a business that has a steady revenue stream, pay off investors, find someone you trust to run it for you, while you use the remaining cash to develop your next great idea. You retain ownership and enjoy the annuity. But cash cows seem to need constant feeding to stay healthy.

Liquidation and close. Even lifetime entrepreneurs can decide that enough is enough. One often-overlooked exit strategy is simply to shutdown, close the business doors, and liquidate. Your exit strategy is important because it helps you define success in business. Investors know that millions of people start new businesses every year. They know that the right exit strategy protects wealth, attracts valuable employees, and ensures a smooth transition.

Which exit strategy an entrepreneur chooses depends on many factors, such as how much control or involvement (if any) he wants to retain in the business and whether he wants the company to continue to run in the same way or is willing to see it change going forward as long as he is paid a fair price for his ownership share. A strategic acquisition, for example, will relieve the founder of his or her ownership responsibilities, but will also mean giving up control. IPOs are often seen at the holy grail of exit strategies since they often bring with it the greatest prestige and highest payoff. On the other hand, a bankruptcy is seen as the least desirable way to exit a business.

To optimize an exit strategy, business owners need to think through their personal and corporate goals and create a plan that includes the following essential components:

• Define the desired outcome
• Focus on optimizing value
• Sufficient time to execute the plan
• Flexibility

Different business exit strategies also offer business owners different levels of liquidity. Selling ownership through a strategic acquisition, for example, can offer the greatest amount of liquidity in the shortest time frame, depending on how the acquisition is structured. The appeal of a given exit strategy will depend on market conditions, as well.

To some, an exit strategy sounds negative. Actually, the best reason for an exit strategy is to plan how to optimize a good situation, rather than get out of a bad one. This allows you to run your startup and focus efforts on things that make it more appealing and compelling to the short list of acquirers or buyers you target.

The type of business you choose should depend on your goals, and the way you grow it should be aligned with your exit strategy. Don't wait until you are in trouble to think about an exit, rather think of it as a succession plan, or a successful transition.

The best type of exit strategy also depends on business type and size. A partner in a medical office might benefit by selling to one of the other existing partners, while a sole proprietor’s ideal exit strategy might simply be to make as much money as possible, then close down the business. If the company has multiple founders, or if there are substantial shareholders in addition to the founders, these other parties’ interests must be factored into the choice of exit strategy as well.

Exit strategies are seen by some as almost the equivalent of a prenuptial agreement. A strong, well-written shareholder and operating agreements are the “prenups” of the business world. If owners someday come to an impasse and need a “divorce,” a good agreement will provide a pathway for the exit of the affected party while minimizing disruption to the business's day-to-day operations.

In an industry where so many companies fail, an exit is a powerful symbol of success. However, that does not mean it's a good idea to focus on an exit strategy from Day One. It may seem paradoxical, but the key to leading a company to a successful exit is not to focus on the exit at all…

Food for thought!