An exit strategy is a contingency plan for a person to exit a business in the event that it meets a substantial profit or it becomes no longer profitable. Investors, business owners, traders, or venture capitalists may plan exit strategies when they become involved with a business. The purpose of an exit strategy is to limit losses or maximize personal profit when the exit occurs.

This type of business planning is perfect for companies of all sizes, from small family businesses to massive corporations. They generally have two goals in mind throughout the process: to either maximize profits or avoid tremendous loss in an unforeseen situation, such as a market crash or an unprofitable fiscal year.

An important part of planning an exit strategy is to figure out why you want to go, whether it’s moving on from the company immediately, or building up your company and assets to prepare for a future exit. Once you have your end goal in mind, the rest of the strategy should be easily identifiable.

The first step in building an exit strategy is to get a valuation. This will give you an idea of what your business could fetch in the market. Armed with this valuation, business strategists can give you the current state of your business and the market. The valuation is the culmination of your financial decisions and gives the owner and potential buyers the best possible picture of the current situation of the business.

Planning for the future is something that is often overlooked by business owners who are often fixated on growing their businesses to its fullest potential. While this is good in theory, it is also important to plan for the unexpected. Looking at the road ahead and having various plans for different potential situations is the mark of a successful businessperson. While doing this it is important to know what exactly you want. A good phrase to help remember this key business principle is, “you don’t want to be the last horse and buggy salesman.” This simple quote can help business owners observe their business from an objective point of view. The business might be great at the moment, but the future and technological advancements can affect it. This is why it is important to build an exit strategy now.

There are a couple of different types of exit strategies that each have their advantages and situations where they are to be used. The first two, done through a Mergers and Acquisitions firm, are either being acquired outright by another company or merging with another company in your business sector. Being acquired by another business can be a profitable exit strategy for businesses and entrepreneurs. If you've planned for a high business valuation, you can attract good buyers and control the price negotiations. An M&A firm will find a suitable buyer for whatever type of exit you are planning.

Another type of exit strategy is passing on the business to a family member. While this sounds like a simple option, it can be quite complicated, although it can have many different benefits for your company. This strategy can be used to put your next generation in a great starting position, as well as possibly providing many tax breaks for your company through the estate planning process that has to take place for the company to be passed along.

Now that you have seen a couple of different exit strategies and how they can be implemented for your business it is key to understand how important exit strategies are. Personal health issues, economic recession and unexpected offers are all things that business owners will have to deal with at some point in their careers. All of these could be devastating to their businesses without proper preparation. Having a clearly defined goal is pivotal in owning a successful business, and success is more achievable when you build an exit strategy and execute it accordingly.