How to create a business plan exit strategy

Despite 55% of CEOs believing that the economy will improve in 2025, economists still predict a global Great Depression will occur in 2030. This forces business owners to prepare for different scenarios to maximize profits or, at least, limit potential losses. 

One of the options to do so is a business exit strategy. This article describes the fundamentals of a business plan exit strategy, offers examples and guidance on developing an effective strategy while overcoming potential challenges.

Highlights:

• A business exit strategy is a plan that describes how business owners will leave the company or pass on its ownership while securing the best possible financial outcome.
• Different exit strategies include mergers and acquisitions (M&A), initial public offering (IPO), management buyout, private equity sale, licensing or franchising, family succession, liquidation, and bankruptcy.
• To build a successful exit strategy, define your goals, analyze market conditions, assess your business value, organize legal documentation, set key performance indicators, engage advisors early, and plan a smooth handover for a seamless transition.

What is a business plan exit strategy?

A business plan exit strategy is a detailed strategic plan that outlines how business owners, founders, or investors will transition out of the company while securing the best possible financial outcome. It provides a roadmap for selling, merging, or closing the business when the right conditions arise. 

A comprehensive exit strategy ensures a smooth transition, whether the goal is to maximize profits, reduce risks, or meet investor expectations.

Both startups and established companies should have a structured exit strategy because it helps to:

• Guide long-term decisions
  Knowing how you plan to exit helps shape business growth, investment choices, and operational strategies.
• Attract investors
  Investors want to see a clear path to profitability and an eventual return on their investment in all possible scenarios.
• Minimize risks
  A well-prepared exit plan helps limit losses and protect stakeholders if the business faces financial difficulties or goes through challenging market conditions.
• Ensure smooth transition
  Whether an owner is retiring, selling, or passing the business to new leadership, an exit strategy clearly outlines succession planning steps, which helps to reduce disruptions. According to Deloitte, 42% of CEOs report having a well-defined succession planning process in their companies as of 2024.

Common triggers for an exit decision

A business owner decides to exit the business for many reasons. The following are the most common.

• Market conditions
  Industry changes, emerging competitors, or economic downturns may create conditions where an exit becomes the most strategic choice. For instance, CEOs see inflation, regulation changes, and geopolitical instability as top business disruptors for 2025.
• Financial performance
  If the company is struggling or not growing as expected, exiting might be necessary to cut losses. In another scenario, a company with strong financials may also choose to sell at its peak to maximize returns.
• Investor goals
  Many investors expect a return on investment within a set timeframe, often through a sale or IPO. If the business doesn’t meet their growth expectations, they may push for an exit strategy.
• Personal reasons
  Owners may decide to leave the company due to burnout, a desire to start a new venture, health issues, or retirement. In fact, US citizens are hitting “peak 65” this year — the biggest number of Americans turning 65 in 2025.

Examples of business plan exit strategies

Now, let’s take a look at eight common exit strategies.

1. M&A

A merger or acquisition happens when companies consolidate, or one is purchased by another. 

This is a common exit strategy for business owners who can sell their company for a profit. In an acquisition, the buyer takes full control, while a merger creates a new entity by combining two businesses. This strategy is often used when the business has strong financials and an established market presence.

• Example: A software startup with a popular project management tool is acquired by a larger tech company looking to expand its product lineup. The startup’s founders sell their shares and exit the business, while the acquiring company integrates the tool into its ecosystem.

2. IPO

An IPO is when a private company goes public by selling its shares to the public. This allows the business to raise significant capital, allowing early investors and founders to buy company shares before becoming available on the secondary market — when they are, hopefully, less expensive. However, going public is a complex and expensive process that requires strict financial reporting and regulatory compliance.

• Example: A fast-growing e-commerce company decides to go public after reaching a $500 million valuation. After months of preparation, an investment banker offers company shares to investors before they become available to the public. The founders retain a percentage of ownership based on the number of shares they own. Hopefully, the investment house was able to sell enough shares to raise the cash needed to fund future growth.

3. Management buyout

In a management buyout, the company’s existing management team purchases the business from the current owners. This allows the company to continue operating smoothly, as the people taking over already understand the business. An MBO can be funded through loans, private investors, or company profits.

• Example: Imagine a successful, family-owned manufacturing business where the retiring founder wants to exit. The company’s senior managers form a group, secure financing, and buy the business. They now have full control, and the transition is seamless for the employees and customers.

4. Private equity sale

Selling to a private equity (PE) firm means transferring ownership to investors who specialize in growing businesses to sell them. Private equity firms often buy companies with strong potential, improve their performance, and sell them at a profit after a few years.

• Example: A chain of fitness centers struggling with expansion costs sells a majority stake to a PE firm. The firm invests in better marketing and new locations, increasing revenue. After five years, the business is sold to a larger corporation at a much higher valuation.

5. Licensing or franchising

Licensing or franchising allows business owners to generate ongoing revenue without selling the company outright. In licensing, others pay to use the company’s brand, products, or technology. In franchising, owners sell the right to open new locations under the original brand, following specific rules and guidelines.

• Example: A local bakery with a famous recipe licenses its brand to a national grocery chain, earning royalties from every product sold. In another case, a small fast-food chain franchises its concept, allowing entrepreneurs to open their locations while paying branding and marketing fees to the corporate owners.

6. Family succession

Family succession happens when a business owner passes the company ownership to a family member, usually a child or close relative. This exit strategy allows the business to stay within the family, preserving its legacy and long-term vision. However, it also requires careful planning to ensure a smooth transition and prepare the next generation for leadership.

• Example: A father who owns a successful construction company decides to retire. Over several years, he trained his son to take over the business, teaching him everything from financial management to client relationships. When the father steps away, his son becomes the CEO, ensuring the company remains in the family.

7. Liquidation

Liquidation is the process of closing a business and selling off its assets, such as equipment, inventory, and property. This strategy is often used when the owner wants a simple exit or when the company is no longer profitable. While liquidation provides as much cash as the sale of the assets can raise, it’s often used to salvage what’s left or to pay creditors. Once the assets have been liquidated, the business will no longer exist.

• Example: A small retail store struggles with declining sales and increasing costs. The owner decides to shut it down, selling the remaining stock at a discount and auctioning off furniture and other items. After paying off debts, any remaining funds go to the owner as the final profit from the business.

8. Bankruptcy

Bankruptcy is a last-resort exit strategy used when a company can no longer pay its debts. Depending on the type of bankruptcy, the business may either restructure its debt and continue operating or completely shut down. While it has negative financial consequences, bankruptcy can help struggling business owners settle debts legally and start fresh.

• Example: A once-popular restaurant chain faces heavy losses due to economic downturns and unpaid loans. The owner files for bankruptcy, and the court oversees the sale of assets to pay creditors. Although the business closes, the bankruptcy process helps to settle outstanding debts, allowing the owner to move on without overwhelming financial burdens.

How to develop a business plan exit strategy: Practical steps

Follow these recommendations to build a successful exit strategy.

1. Define exit goals
   Decide what you want to achieve with your exit, whether it’s maximizing profit, ensuring business continuity, or reducing personal involvement. Your goals will help determine the best exit strategy, such as selling to a competitor, going public, or passing the business to family.
2. Analyze market conditions
   Research your industry to understand when and how businesses like yours typically exit. If mergers and acquisitions are common, selling might be the best option. If industry regulations are changing, you may need to adjust your strategy to stay competitive before exiting.
3. Assess business value
   Conduct a financial assessment to determine how much your business is worth. Review revenue, profits, assets, and debts, and consider hiring a valuation expert for an accurate estimate. A strong financial position makes your business more attractive to buyers or investors.
4. Organize legal and compliance documentation
   Ensure all contracts, licenses, tax records, and ownership agreements are in order. Buyers and investors will conduct due diligence, so having up-to-date documentation can speed up the process. A business lawyer can help you avoid legal complications.
5. Set key performance indicators (KPIs)
   Track financial metrics like revenue growth, profitability, and debt levels to assess the best time to exit the business. Operational KPIs like customer retention and employee performance also impact business value. If targets aren’t met, adjust your business strategy before finalizing your exit.
6. Engage advisors and stakeholders early
   Consult financial advisors, legal experts, and potential investors or buyers early in the exit process. Their insights help you refine your exit strategy planning and identify potential risks. Additionally, keep employees, partners, and key stakeholders informed to ensure a smoother transition.
7. Plan a smooth handover
   When selling or passing the business to new leadership, document processes and train key employees for continuity. A well-prepared transition increases the chances of a successful exit. The smoother the handover, the more valuable your business will be to the next owner.

Common challenges and how to overcome them

When planning exit strategies, various challenges may arise.

• Unclear exit goals
  Without clear goals, owners may delay or struggle with their exit. Define whether you want maximum profit, business continuity, or a quick sale. A clear plan helps guide decisions and avoid confusion.
• Inaccurate business valuation
  Overestimating or underestimating your business’s value leads to failed deals or financial losses. To avoid this, regularly assess your company’s financial health and consult valuation experts to get an accurate estimate.
• Lack of buyer or investor interest
  If a business isn’t attractive to buyers or investors, owners may struggle to find a suitable exit. Strengthen your initial business plan by improving profitability, reducing risks, and demonstrating growth potential.
• Poor timing
  Exiting too early or too late can result in financial losses or missed opportunities. Monitor industry trends and market conditions to identify the right time for an exit. Also, set key KPIs to determine when your business is in the best position to sell or transition.
• Unprepared successors or leadership team
  If new owners or successors aren’t well-prepared, the business may struggle after the transition. Provide proper training, document key processes, and ensure leadership is ready before exiting so the passage of ownership is smoother for the new owners.

How Ideals VDR facilitates a business exit

Ideals virtual data room significantly improves the process of business exit by offering the following:

• Cloud storage for large volumes of data
  Ideals provides scalable cloud storage, allowing businesses to store and organize large amounts of financial records, legal documents, and operational data required during exit planning. This ensures that all necessary files are easily accessible.
• Complete data security
  The sensitive corporate and financial documents stored in the Ideals virtual data room are kept secure and confidential due to security features such as redaction, watermarking, granular access controls, and multifactor authentication.
• Effective collaboration
  Stakeholders and potential buyers can proactively collaborate in the Q&A section. They can just post a question related to any document so that you get a chance to answer it quickly without pausing the process.
• Real-time monitoring
  Thanks to audit trails, you can track who accessed what documents and when. This helps identify serious investors’ interests and accelerate decision-making. Additionally, it helps avoid data breaches.
• Round-the-clock support
  Ideals has knowledgeable multilingual support that is available 24/7 via chat, email, and phone. They ensure users get the best experience by quickly solving issues that arise.

Summing up

A well-planned business exit strategy helps owners maximize profits, minimize risks, and ensure a smooth transition. Whether selling, merging, or passing the business to new leadership, having a clear roadmap improves decision-making and helps attract investors. To make the process of business exit planning and execution more straightforward, opt for virtual data room solutions such as Ideals. It offers secure cloud storage for your sensitive documentation, where you can also effectively collaborate with stakeholders and potential investors.

FAQ