A business exit strategy is a proactive plan for leaving a business that helps manage risk and maximize value. Planning early ensures leadership continuity, financial readiness and flexibility for changing conditions. Common strategies include selling the business, mergers, initial public offerings (IPOs) or alternatives like employee stock ownership plans (ESOPs).
It can be challenging to think about creating an exit strategy to successfully quit a business. After all, who would want to think about leaving when you have likely spent years, if not decades, establishing your empire? Many businesses think of an exit strategy as a sort of “doom and gloom” outlook. In reality, it’s a good safety net to have, especially when you understand what it is and what it means for your business.
But, as experts note, creating a solid exit strategy is an important step in every entrepreneur’s journey. To help you navigate the complex world of business exit strategies, we created a simple-to-follow guide. We’ll detail planning a business exit strategy and key examples from the business world. Plus, you’ll see some exit strategy models you can potentially use yourself. Let’s get moving.
What Is an Exit Strategy in Business?
An exit strategy is a proactive plan to shift out of or liquidate an investment position, business transaction, or venture. “An exit plan provides a roadmap for how businesses or investors will exit after realizing gains from their investment,” notes Carey Smith, senior vice president and chief technology innovation officer of Blue Cross and Blue Shield of Minnesota and president of XcelerateHealth “Having a plan to exit helps manage risk by reducing exposure to potential downsides if conditions change and is especially important for startups or high-risk investments that face higher levels of uncertainty.”
Just as important as the strategy that initiated the business is the one that guides the “how” and “when” to exit. In an ideal situation, this plan is detailed along with triggers, measures,and even events that could signal the right time to exit and move to the next thing.
“Being deliberate in defining the exit triggers is important because they may not be recognizable when they arise, if there hasn’t been proactive thought as to what they may be,” Smith adds.
Why Is an Exit Strategy Important?
Exit strategies are important for the business now and in the future, regardless of who ends up being the owner. Exit strategies come with a number of key benefits, some financial and some logistical.
Maximize Business Value
By planning your exit strategy early, owners can more easily align their operations with long-term goals. An example of this would be identifying key investment partners or business buyers before exiting the business is on the horizon. This gives owners time to prepare their business for sale and make it as appealing to buyers as possible.
Prepare for Unexpected Events
Creating an exit strategy allows you to prepare for unfortunate circumstances. This might be illness, death or losing the ability to build your business as you had hoped. While these events may be unlikely to happen, having an exit strategy allows you to ultimately protect what you’ve worked so hard to build.
Develop Proper Leadership Systems
Whether you plan to pass your business on to current employees through a succession plan, or sell it to the highest bidder, an exit strategy is essential. It helps you create an environment to develop current leadership.
A properly written exit strategy contains several elements. It outlines who should take the chain-of-command when the business passes hands that all stakeholders agree on. Without that plan in place, when an owner or manager leaves, infighting over positions could ensue. A clear exit plan clarifies staff, owner and managerial expectations. It makes your business well set up for an eventual takeover.
Tips on How to Create an Exit Strategy
Creating a solid business exit strategy can feel challenging. This is especially true if you have a medium-to-large sized business. Here are some proven tips experts suggest you can use with good effect.
1. Use a Checklist
When building a successful exit strategy, Smith suggests a checklist to help you get started:
- Document all the potential situations that would call for an exit. This could include market considerations, industry challenges, and business model economics. .
- Allow for flexibility. This can support changes in priorities and space for new ideas, alternatives, and changes in market conditions.
- Define success metrics and articulate the outcome objectives and the value they will generate.
- Note investor expectations to ensure alignment with the achievable value expected.
- Create a roadmap with an exit timeline and expected targeted returns.
The choice of business model and industry influences the selection of an appropriate exit strategy. Startups take time to build an attractive valuation. Therefore, they require patient investors with long-term exit plans such as venture capital firms. High-growth businesses require large capital investments. Thus, they typically prefer acquisition exits in order to scale.
High capital-intensive businesses have exit plans that require mergers where value is created through combined scale. Business models that generate value from intellectual property (IP) typically have exit plans that involve acquisition or revenue sharing and licensing deals that provide royalty.
2. Be Flexible
As creators and entrepreneurs, starting with the end in mind is not an easy mindset to have. It certainly requires a shift in perspective. Be aware of business environments and world factors that could influence or impact your decision. Make those things a point of focus while building the business exit strategy.
“Remaining flexible is important. In our case at Plurilock, we went public very early during the pandemic, as that was an option available to us then,” says Ian Paterson, CEO and founder of Plurilock, a leading AI cybersecurity company. “However, if we wanted to do the same thing right now, it would have been very difficult to accomplish that.”
3. Plan Your Business with the End in Mind
When thinking about the “how to” of a business exit strategy, Paterson recommends thinking of it like a car trip.
- Start with the end in mind. Know who you’re going to sell to and what they value.
- Plan a route. Know what milestones you need to hit at various stages along the journey.
- Ask for directions. Engage with service providers like bankers and accountants frequently.
- Don’t run out of gas. Make sure when you go to sell the company you don’t run out of money and negotiating power.
- Pace yourself. It’s a long ride.
What Are the Different Types of Exit Strategies?
There are several key types of exit strategies available to businesses. These include sale of ownership, IPO, liquidation, recapitalization, debt restructuring or refinancing, ownership transfer, merger or buyback.
Sale of Ownership
This refers to selling all or part of your business to another party. This could be a strategic buyer, investor, or competitor. It involves transferring your ownership stake and potentially exiting fully from the business.
Initial Public Offering (IPO)
Often considered a symbol of prestige and success, IPOs allow a private company to list its shares on a public stock exchange. This can give owners the opportunity for large profits and options for equity financing in the future.
Liquidation
Liquidation is closing down the business and selling all of its assets. Businesses using this strategy then use any cash to pay off debts and pay remaining owners where possible. This is a less-than-ideal exit strategy for businesses that don’t succeed.
Recapitalization
Recapitalization involves rearranging the company’s mix of debt and equity to stabilize its financial structure or provide a partial cash exit. It can include issuing equity to buy back debt or vice versa. It sometimes enables owner liquidity without full exit.
Debt Restructuring/Refinancing
Debt restructuring (or refinancing) involves renegotiating existing debt terms. For example, lowering payments, extending maturity or swapping debt for equity to improve financial health or free up cash. This can help owners extract value indirectly or survive financially troubled periods before an exit. Refinancing is a more routine business transaction. Debt restructuring, however, may signal signs of financial trouble.
Ownership Transfer
A common type of ownership transfer for exit purposes is transferring ownership to a successor. This can potentially keep it in the owner’s family tree. This allows for strong business continuity, and may allow the previous owner to be involved if the new owner(s) desire for them to be.
Merger
Mergers occur when two companies combine into a single entity. For the selling business, this often means exchanging ownership for cash, stock in the new company, or a mix of both. Mergers can provide an attractive exit route by allowing the owner to benefit from the future growth of the combined entity while still stepping back from daily operations.
Buyback
A buyback (often through a management buyout or MBO) is another strategy. It occurs when the company itself, or its existing management team, purchases the owner’s shares. This allows the current leadership to take control and gives the exiting owner a way to cash out without needing an external buyer. Buybacks are common in closely held businesses where continuity is valued.
Less Conventional Options
If none of these types of exit strategies work, the good news is that there are a few less conventional exit strategies to consider. Employee stock ownership plans (ESOPs) give employees a more vested interest in the company. It allows the original investor or owners to step back. Joint ventures (JVs) are co-owned partnerships where external parties are brought into the company fold.
“Special Purpose Acquisition Company (SPAC) is a newer exit strategy that is growing in popularity, where a merger takes place with external SPAC providing capital investment opportunities that allow it to go public (IPO) at a much higher valuation,” Smith advises. Lastly, earnouts are contingent payments that can be based on future company performance.
Creating an exit strategy is a smart business decision from the get-go and shows a forward-thinking approach to any business. For one to be successful, it is important to research and think about all factors that would impact the how, why and what of an exit strategy.
“The most helpful thing to do would be to talk to a specialist, such as an investment banker and business broker to talk through strategies,” Paterson suggests. Smith adds, “Aligning the exit strategy with the vision and entrepreneurial motivations allows achieving value while also serving goals beyond just an immediate financial return.”
How to Decide Which Strategy Is Best for Your Business
To determine which strategy might work best for you, a good place to start is to look at industry models applicable to similar businesses. Paterson advises that if the exit strategy is acquired by a competitor, certain aspects of the company, like corporate finances and internal controls, are more important than if the goal was to take the company public.
If the goal is to get acquired by a venture capital, intellectual property, personnel and other assets might be more valuable. “With my company Plurilock, where we are acquiring regional cybersecurity providers, we are looking for strong sales and marketing teams with strong contracts,” he adds. “We value the strength of those relationships, and it is a strong component of our value process.”
Exit Strategy Models to Emulate
Looking at successful business exit strategy examples can help. When looking at industry models to emulate, both Smith and Paterson share examples of both successes and failures.
- Smith notes that Facebook’s acquisition of Instagram ($1 billion), Oculus ($2 billion) and WhatsApp ($19 billion) provided significant returns for its investors.
- Walt Disney Company’s acquisitions of Pixar and Marvel provided significant revenue and strategic market positioning.
- One of the most notable is Google’s acquisition of Android, “which has successfully positioned Google as the market leader in smartphone operating systems, allowing significant control and access to consumer data,” Smith shares.
For all the successful exits, there are an equal or greater number of failed exits that didn’t get the expected results. “Yahoo is one of the best examples of failing to acquire other exiting companies and failing to maximize on their own exit,” Smith recalls. “Yahoo refused to buy Google for $1 billion in 1998 and again refused $5 billion in 2002. In 2023, Google has a market cap of $1.7 trillion. And sadly, in 2008 Yahoo turned down an offer to be acquired by Microsoft for $44.6 billion and instead sold themselves to Verizon in 2016 for only $4.86 billion.”
Plan for Your Eventual Business Exit for a Successful Future
The importance of exit strategy in business is real. It’s key to protecting your personal interests, assets, and your business’ mission and vision. Creating a solid business exit strategy can help you set up another entrepreneur for success in the long-term—whether they are family or not.
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This article was updated October 2025. Photo courtesy of Monkey Business Images/Shutterstock
