6 Business Exit Strategies for Small Business Owners

49% of business owners plan to exit their company within the next 5 years. And if there’s one thing they need clarity on, it’s how that exit will happen.

• Do they sell the business to another company or shut it down completely?
• What kind of valuation should they accept?
• Should employees or co-founders be involved from now or should they be looped in later on?

These are the questions you need to answer right now, so that you can have a smooth exit 5 years later.

If you're wondering how to build a business exit strategy or what your options are, this guide breaks it down for you.

Why do you need an exit strategy?

Most small business owners expect to sell their business one day, cash out, and move on to their next chapter, whether that’s retirement, a new venture, or financial freedom.

And even though that one day might not be 3, 5, or 7 years down the line for you, it’s important to have a clearly defined exit strategy in place.

Why? 

Let’s understand:

Alignment with the long-term business goal

Let’s say you plan to sell your business to an industry giant in the future. That can only happen when you have an exit plan in place, clearly defining:

• When should this acquisition happen
• What should be the valuation of the business by then
• How much return would you take home

You see, planning your exit guides your business decisions today. Meaning, it ties your small everyday decisions with your ultimate goal. It helps you stay focused and take the necessary steps for an eventual smooth exit.

Attracting investors or partners

Having an exit plan is non-negotiable when you approach an investor. They particularly want to know when and how they can get their money back with lucrative returns if they invest in your business.

That’s the case with business partners as well. When your exit plan says, “We'll consider an IPO when we reach a $10 billion valuation,” it suggests that you have a long-term vision and have thoroughly thought about the future that involves them.

Succession planning

A business operation should survive even when the original owner is not around. That’s what makes the business worthy for buyers.

Now, you aren’t going to stay around for centuries. In that case, who would take the reins of your business after you are gone? Will your family run the business, or will the stakeholder/ partner take over your share?

If you want to protect the legacy of your business, you have to plan for that eventual future from today.

Be it by teaching the ropes of business secrets to your heir, training the right people, or putting your succession plans in writing.

Prepares you for unexpected events

Planning for the uncertainties like illness, death, or economic downturns might force you to exit sooner than you plan. Having a clear plan of action would ensure that your business remains optimally operational even if you can’t stay involved in it.

That said, an exit strategy is a responsible step you must take to set your business (and yourself) up for a better outcome when the time does come to move on.

And yet, one-third of surveyed business owners by Gallup admit they either don’t have a long-term plan or are unsure about what will happen to their business after they leave.

7 Types of exit strategies to consider for your business

There are several ways to exit a business, depending primarily on your goals and whether your business is lucrative enough for external stakeholders.

Let’s understand six common exit strategies that are common for business owners, along with examples:

1. Acquisition

Acquisition entails selling your entire business to a larger company, typically operating in the same industry as yours. Generally, when a business is acquired, the owner loses their ownership and decision-making rights. And in return, they get a lump sum or a structured payout.

Now, acquisition generally makes sense when a larger company sees a strategic value in what you have built. Think in terms of technology, product, expertise, or your customer base.

For instance, Salesforce—the largest cloud-based CRM tool has acquired over 65 companies to date, to enhance its capabilities and strengthen its market position. Some of its notable acquisitions include:

• Slack: $27.7 billion
• Tableau: $15.7 Billion
• MuleSoft: $6.5 Billion
• ExactTarget: $2.5 Billion

Most tech startups today plan to get acquired by a leading giant in the next 5-7 years.

2. Merger

Mergers are another popular exit strategy, where you essentially join forces with another company of similar size or someone offering complementary offerings. These strategic initiatives let you pool resources and enter new markets while cutting overlapping costs.

If we think of successful mergers, the Disney and Pixar merger brought some of the super successful hits like WALL-E, Up, and Bolt.

However, not all mergers are successful. The AOL and Time Warner merger for $165 billion, the Alcatel and Lucent merger, and many others suggest that cultural clashes, inadequate due diligence, and misvaluation can result in failure, causing losses worth billions of dollars.

That said, a merger makes sense when the two companies share values, vision, and compatible operations.

3. Succession

The most common type of exit for family-owned businesses is passing down the reins to the family members (typically the son, daughter, wife, or relative). It allows the business to stay in the family and keeps your legacy alive.

For a succession to be successful, you must train and mentor the heir over the years so they can carry forward the legacy without sinking the business.

Now, only about 3% of all family businesses operate into the fourth generation or beyond. Yet, if the foundation is strong, you can build multinational giants like the following family-owned businesses:

• The Ford family: Ford Motor Company
• Piëch/Porsche family: Volkswagen
• The Lee family: Samsung

Succession works when there’s someone in the family willing and capable of taking over (and someone you can trust).

4. Employee buyout or ESOP

In this type of exit planning, you sell your business to existing management or employees through an Employee Stock Ownership Plan (ESOP).

This is a perfect way of rewarding your employees who know the ins and outs of your business and have helped you make it successful. A way to continue your legacy without letting it be crushed under new management.

For instance, when Thomas Cook was struggling financially, the management team bought the company and turned it debt-free. Years later, Thomas Cook managed to go public again with the support of its internal team.

5. Initial Public Offering (IPO)

An IPO means taking your company public by selling its shares on a stock exchange. This exit method can generate a lot of capital and prestige, but it's rare for small businesses because it requires substantial size, growth, and regulatory compliance.

Besides,  not all the IPOs can be deemed successful. For instance, when Uber went public, it couldn’t manage to raise even half of its expected valuation, i.e., $120 billion.

That said, even if your company has strong revenue, big growth potential, and the ability to handle regulatory scrutiny, the IPO can fail.

6. Liquidation

If you don’t want to sell the business to internal or external stakeholders, you can close the business by selling off its assets and everything it owns, piece by piece.

This is often considered when a business isn’t profitable or the owner wants out quickly and can't find a buyer. Often, as a way to avoid bankruptcy.

Nearly 27% of the small businesses with an exit strategy in place plan to close their business eventually.

Weigh down your options and check alignment with stakeholder preferences as you choose an exit strategy suited for your business.

When should you start thinking about the exit strategy?

As soon as you start building a business.

Not five years in, and definitely not when things are falling apart. Most owners treat exit planning as an afterthought.

And while you may find it strange to plan your exit when you’re just starting or still growing your business, having a clear goal as to where your business will end or transition pays off big time.

Ideally, you should have a clear exit goal when you step in to write your first ever business plan. But in case you missed that, now is not too late either.

And no, early planning isn’t just for investor-backed startups. It matters just as much for bootstrapped businesses:

Sets valuation goals

Exit planning forces you to define how much you want the business to be worth. That number shapes how you price, spend, grow, and position the business over time.

For instance, if you plan to seek an acquisition in the future, you might invest in creating proprietary products or technologies that make the business more valuable.

Similarly, if you foresee a merger, you can start by nurturing relationships in your industry.

Guides decision-making

When you know how you want to exit, you start aligning your daily choices to match that outcome. You spend differently. You hire with purpose. You maintain clean finances. And your exit plan becomes the lens through which you make major decisions for funding, growth, hiring, and much more.

Prepares operations for transfer

Many businesses fail to exit because the owner never prepared for someone else to take over. That said,

• If you're planning succession, train the person for at least a couple of years back.
• If you're planning a sale, build a robust operational system that can work without you.
• If you're planning a sale, build a robust operational system that can work without you.

Avoiding delays or conflicts

Some owners wait too long to think about exit, and then feel stuck because their growth feels stunted. By thinking early, you can avoid last-minute scrambling or conflicts.

For instance, if you have co-founders or investors, discussing exit expectations early prevents misunderstandings later. Let’s say, you may want to keep the business for life, but an investor is expecting to cash out in 5 years. In such situations, it’s better to reconcile that early on.

That said, you can always change your exit plans once you start growing your business. The only thing to bear in mind is exit shouldn’t be an afterthought. It should guide major decisions in your business so that your business is ready for a shift when the time arrives.

How to include your exit strategy in your business plan

If you are chasing an investor, they would need a clearly defined exit plan in your business plan. So, how exactly do you include one in your business plan?

Let’s understand that:

Where to place exit strategy: Ideally, in your executive summary or financial section of a business plan.

What to include in an exit strategy?

• Preferred exit method: Crisply explain how you plan to exit and why you are choosing that particular method. In case you are weighing between two methods, clarify
• Estimated timeline: Clearly outline how long before you plan to get acquired, launch an IPO, or pass on the business to an heir
• Stakeholder considerations: If you have co-founders, early employees with equity, or outside investors, clarify how they factor into the exit. Be transparent about roles, returns, and expectations
• Legal/financial implications: Mention if your chosen exit plan involves specific legal or financial implications. If so, explain what you're doing to prepare, like choosing the right legal structure, engaging in tax planning, or protecting intellectual property to make the exit smoother

Example of an exit strategy: Here’s an exit strategy sample that you can refine and adopt to include in your business plan

Mistakes to avoid while making an exit

While exit may be far for you, you still need these repeated reminder tips so you don’t make the mistake that many other founders are making while exiting:

1. Not having an exit plan at all

Most entrepreneurs expect a smooth exit, but rarely spend time mapping an exit strategy. Remember, planning your exit is as important as planning your launch.

Without an exit plan, your business will most definitely flounder, and you will walk away with a lesser valuation.

2. Waiting too long to plan

There will never be a perfect time to plan an exit. But one day you will have to exit, either by handing over your business to someone else or closing it entirely.

Think about that direction today and tie your short-term strategies with that vision. This way, you will have a rightful successor, an interested acquirer, or legal means to go public when the time arrives.

3. Not involving legal/financial experts early

Just like a launch, exit also involves a lot of legality and compliance requirements. You’ll need legal support, tax advice, and someone who knows how deals actually close. If you leave this too late, you’ll miss key steps, run into delays, or agree to terms that don’t work in your favor.

4. Not communicating the plan with co-founders or key stakeholders

Unless you are a solopreneur with no invested stakeholders, you cannot make an exit decision all by yourself. Be it your partner, investor, or even employees, for that matter, they need to be aware of your exit plans. If you communicate your plans at a later stage, there’s a high chance of resistance and conflicts that could have been easily avoided.

The bottom line

Exit planning isn’t about expecting failure. In fact, it’s more about staying in control so that you can leave the business on your terms.

A business that’s prepared for exit is easier to sell, hand over, or close without chaos.

However, as an entrepreneur, who has to figure out a launch plan, growth strategy, marketing & operations, and to top it off, even an exit plan—you may feel overwhelmed.

Exactly why you need professionals and advisors to gain clarity and strategic direction!

At Plangrowlab, our industry-vetted experts help you figure out business strategies, legal obligations, and put together business planning documents, so that you can have helping hands to turn your ideas into reality.

Book a 30-minute free call today.