Small Business Exit Strategy: The Ultimate Guide

Consider a business exit strategy—an intelligent plan for business owners to sell their company to other people or companies. It is a way for them to profit from their efforts if the business succeeds or a safety net if things do not go as planned.

small business exit strategy

"The best way to predict the future is to create it." 

-Peter Drucker

This saying is so true. We often get so engrossed in the "today" that we avoid planning for what might come tomorrow. In business, this is even more relevant. We might not think of it as an obvious step, but planning ahead is a crucial part of the game.

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Planning ahead also means planning an exit strategy for your small business. 

If you have just started a business, you might feel this is stupid. "Why would I plan exiting when I have just begun thriving?"

Don't know wxit strategy (meme)

Well, if you think about it? It truly isn't as stupid as it might sound! And you don't have to be scared at all.

An exit strategy is more than just shutting down a business; it is a well-thought-out plan that propels a company toward its long-term goals. 

In this article, we will talk about how you can best plan your small business exit strategy. So, let's first begin with what it is.

What is a Small Business Exit Strategy?


Consider a business exit strategy—an intelligent plan for business owners to sell their company to other people or companies. It is a way for them to profit from their efforts if the business succeeds or a safety net if things do not go as planned.

Assume you have started a software company from scratch. Your exit strategy would be having a good plan for selling your ownership in the business to another tech company or a group of investors. If your software business succeeds, you can use this plan to profit from your efforts and achievements.

On the other hand, your exit strategy can serve as a safety net if your software company encounters difficulties or is not doing well. It offers a way to sell the business to a buyer who thinks they can turn it around or close it down, limiting your financial losses.

These exit strategies are helpful not only for business owners but also for investors such as venture capitalists who need to know how they will get a return on their investment in a company.

Remember that business exit strategies differ from those used in the stock market, where you might sell individual stocks rather than the entire company. 

Why does your small business need an Exit Strategy?

importance of small business exit strategy

A small business, like any larger enterprise, requires an exit strategy. A well-planned exit strategy for your company ensures you reap the benefits of your hard work and investments while leaving a positive legacy.

Every business will eventually need to move on, whether it is to hand the reins over to a new owner when they decide to retire or take a completely different direction. Leaving a business can be an emotionally charged experience that makes it difficult to think clearly. That's why having a smart exit plan is a must.

Here are some reasons why an exit strategy is of utmost importance:

Financial security: It is one of the most important reasons for having an exit strategy. Whether you want to sell your company, transfer it to a family member, or go public, having a solid plan can help you get the most money. According to EPI, 80-90% of business owners' net worth is tied to their companies. So, an exit plan is like negotiating the best possible price for your life's work.

Business development and planning: An exit strategy is more than just selling your company; it is also about charting your company's growth and trajectory. It is similar to having a roadmap for your journey, which will help you make informed decisions and investments along the way.

Risk reduction: Running a small business is full of risks. An exit plan is like an insurance policy. It prepares you for unforeseen events like market disruptions, personal difficulties, or economic downturns.

Attracting investors: If you ever look for external funding, having a solid exit strategy can act as a powerful magnet. It demonstrates that you have a clear vision and that their money will eventually pay off.

Retirement planning: For many small business owners, a sizable portion of their retirement savings comes from their company. When it is time to leave the company, having an exit strategy is like ensuring you have a cozy nest, securing your future.

Business legacy: Your business is your legacy. An exit strategy ensures that your hard work and dedication live on, benefiting others or the community, whether you plan to pass it on to the next generation or sell it.

Market changes: Markets change, and what is a thriving business today may face difficulties tomorrow. Having an exit strategy means you're prepared for market shifts, allowing you to adapt and prosper or gracefully exit if necessary.

Personal goals: Your personal goals are important. An exit strategy considers what you want for yourself and your family. It is a strategy for aligning your business success with your aspirations. 

The critical factors of planning your Exit Strategy

Critical factors of planning exit strategy

Consider the following key factors when developing your exit strategy:

  • Your intended length of stay in the company.
  • Your financial situation and the benefits you expect from the exit.
  • A professional evaluation of your company's worth.
  • Identification and development of potential successors.
  • The market situation and industry trends.
  • The contingency plans that you have in case of unforeseen circumstances.
  • Any obligations to investors or creditors and the procedure for satisfying them.

Early planning for your exit can make the transition as smooth and successful as possible when the time comes. It works like a roadmap that helps you stay on course.

Types of Small Business Exit Strategies

Types of small business exit strategies

There are various types of exit strategies that you can utilize to retire with peace. However, there are various obstacles that come with exit planning. A recent survey found that 58% of business owners believe external factors like the economy, regulation, industry trends, and taxes can have an impact on your exit strategy. So, it is important that you choose your exit strategy carefully, keeping all the important factors in mind.

Liquidation


You own a small business and have decided to call it quits. Liquidation is your escape strategy. You gradually wind down your company, selling assets, paying off debts, and eventually closing the doors. This method allows you to live off the business's profits while it gradually fades away. 

However, there is a drawback: it can impact your employees, vendors, customers, and the community as a whole. People may lose their jobs, and business relationships may be strained. Still, it is a simple way out if your company loses money.

To earn more using liquidation as an exit strategy, you must have valuable assets to sell, such as land and equipment. If it is not too much trouble and your decision to liquidate is not motivated by money, consider selling the company to the general public. If this is not an option and you would rather close the doors, liquidating your assets may be your best bet.

Friendly Takeover

You have built your company from the ground up and want it to remain in the family or with close friends. A friendly buyout can help in this situation. You sell your company to people you know and trust. It sounds cozy and comforting, doesn't it? It can be, but it is also a tricky path.  

You must engage in delicate negotiations about how much they will pay, when it will occur, and who will take charge. It can also complicate matters if not every family member is interested in joining. Even when done with the best intentions, family takeovers can occasionally hurt the company.

There are several things to consider and plan for if you are considering passing your company on to your children or other family members, such as making sure the person who will take over has the necessary qualifications, is capable, and is dedicated to the company's success. This will make retiring much simpler.

Management Takeover

This strategy focuses on your company's current leaders or key employees taking over. If you have built a business that you want to see continue long after you are gone, you should consider turning to your employees.

That is right—they will have a good idea of how things work now and intimate knowledge of company culture, corporate goals, and a pre-existing determination to make it work.

However, it is not a walk in the park. You must have a solid plan in place before handing over the reins. And things can get complicated if no one can come up with the money or secure financing. 

Even after you have begun the process, someone may withdraw, adding to the complications. Furthermore, there is always the risk that they will not understand the business and will lack the determination to see it succeed, and if the company is divided among family members, there is the possibility of family rivalry.

Merger & Acquisition

Suppose another company, like a competitor or an investor, wants to buy your business. In this scenario, the owner negotiates the sale, prepares a bill following an invoice template, receives payment, and exits the business. 

Looks good, right? It can be, but it also means giving up control over where your company is going. It may be challenging to let go if you are emotionally invested in your vision. On the other hand, if you play your cards correctly, you may receive more money than your business is actually worth. You could even start a bidding war if multiple parties are interested!

When you begin with the goal of being acquired by another company, you can position yourself as an appealing prospect for potential buyers. However, remember that these specific companies may choose not to acquire you or may never have been interested in doing so. If you decide to specialize in a niche product that only one company would want, you risk significant loss if they do not show interest. 

Third-Party Takeover

Many business owners dream of selling their small business to a third party on the open market. It can bring in a new owner eager to help your company succeed, give you a juicy sale price, and follow the negotiated terms. 

Many business owners find it very appealing to purchase an existing company. Why? Well, it is less risky than starting a new one, and getting funding through seller financing is frequently simpler than dealing with the difficulties of financing a startup. Buyers also benefit from the advantages of stepping into a business with pre-existing systems, a consistent income stream, loyal customers, and a solid brand reputation.

But here's the thing: as baby boomers retire, the business world is changing, so selling prices may not be as high. Plus, finding a buyer and negotiating can take quite some time and effort.

Initial Public Offering (IPO)

So, you are the CEO of a successful startup about to go public. For many startup founders, it is like a dream come true. However, going public is not for everyone. This exit strategy is only suitable for a few startups and large corporations. 

It is not the best fit for most small businesses, owing to the difficult task of convincing both investors and Wall Street experts that your company's stock will be valuable to the general public. However, if you run a smaller company already on the path to expansion, such as a restaurant chain that has begun franchising, an IPO can help you recoup your investment. 

However, there is a catch: you may be unable to sell your stock until the lock-up period expires, which adds another layer of complexity to the process. Going down this path involves much scrutiny and dealing with regulatory issues like the Sarbanes-Oxley Act. You must also answer to a handful of shareholders, which may alter decisions.

Employee Stock Ownership Plan (ESOP)

Now, consider that you can create an ESOP trust and sell all or a portion of your company. This trust holds stock in your company for the benefit of your employees. The sale can be structured with borrowed funds or seller financing. ESOPs provide benefits such as money, tax breaks, and the ability to stay involved if desired. 

It is a win-win situation, but it can be pretty complicated. Much regulation is involved, so you will need experts to guide you, such as an ESOP trustee and experienced advisors. However, selling to an ESOP ensures a predictable timeline, control over your exit, and a reasonable price for your company.

How can Virtual Assistants help plan an excellent Small Business Exit Strategy?

how virtual assistants can help

Although, hiring virtual assistants can be a really wise decision that can even help you avert early exiting or unwanted one. Virtual assistants can help you improve the efficiency of your business processes, streamline operations, and streamline operations. They can help reduce costs and increase profitability by identifying areas for improvement, making it less likely that you will need to exit due to financial difficulties.

However, if the situation arises and you are forced to exit your business, virtual assistants can assist you in successfully planning your exit strategy. Here's how they can do so:

In-Depth research and analysis: Consider virtual assistants to be your research partners. They will delve deep into various exit strategies and explain them in plain English. They will also tell you what is hot and what is not in your industry so you can make sense of your options.

Market understanding: Your virtual assistant will be your market whisperer. They will gather information about your competitors, research market trends, and locate potential buyers or investors. This information will serve as a compass, guiding your exit strategy in the right direction.

Financial advice: Do numbers give you a headache? No need to worry. Your virtual assistant can assist you. They will collaborate with you to develop financial forecasts and valuations. They will break down your company's financial health in plain English and advise you on the best time to exit for the most profit.

Paperwork and documentation: Exit plans come with much paperwork, which can be overwhelming. Your virtual assistant will handle the details, drafting and organizing all necessary documents to ensure a smooth transition.

Communication and negotiation: Virtual assistants are your communication maestros. Your virtual assistant will arrange meetings, create presentations, and even negotiate on your behalf. They are good at keeping the conversation and your interests at the forefront.

Project management: Planning an exit can be like managing a large project. Virtual assistants are the ultimate managers, keeping track of timelines, tasks, and deadlines. You can concentrate on the big picture while they handle the details.

Administrative assistance: What about those pesky administrative tasks? Your virtual assistant is on your side. They will manage emails, schedule appointments, and handle the day-to-day details so you can start planning your exit strategy.

Due diligence: Due diligence can be tedious, but your virtual assistant will make it seem effortless. They will help gather and organize all necessary documents and information, leaving no stone unturned. 

Wishup: For top-notch Virtual Assistance

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Wishup is not your average virtual assistant company. We're different in a big way. Our team is made up of highly skilled professionals who bring a wealth of experience from various industries to the table. They are not just prepared; they are pumped to meet your specific requirements.

What makes us unique? We are not fans of one-size-fits-all solutions. We immerse ourselves in your world, collaborating with you to gain a thorough understanding of your specific requirements. It all comes down to your requirements, goals, and vision. Then, we create custom solutions that are perfect for you.

We are more than just service providers; we are your productivity partners. So, whether it is streamlining your operations, managing your schedule, or dealing with those nagging administrative tasks, we are here to help. 

Perks of partnering with us?

  • Only 0.1% of the hand-picked applicants globally.
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  • A dedicated account manager to take care of your every need.
  • Zero geographical limitations with US-based and offshore virtual assistants.

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Plan your exit strategy the smart way!

Your business will inevitably end. Whether or not you have control over it, it will still happen. So start developing a plan and preparing your company for the next owner. It will help you get a higher price and increase your business's likelihood of survival.

Always have an exit startegy (meme)

Remember, you do not have to do it all alone! Wishup is there to help.

Contact us right away! You can mail us at [email protected] or sign up for a free consultation with our experts to know more.