What is a Business Exit Strategy? Types, Pros & Cons

Most business owners spend years building something from scratch. But very few plan how they’ll step away from it.

That’s a problem.

A recent study by Securian Financial found that only 30% of small business owners have a formal exit plan. The rest are either guessing or hoping things will fall into place later.

But stepping out without a plan often means leaving money on the table, or worse, losing control of how the business moves forward. And even if the business is doing well now, things can change fast—new competitors, health issues, or just burnout.

This is where a business exit strategy helps.

It gives you a clear path to leave the business—whether you want to sell it, pass it on, or close it down. It’s not just about walking away. It’s about knowing how and when to do it in a smart way.

In this guide, we’ll break down what a business exit strategy is, why it matters, and how you can build one that fits your goals. You’ll also learn about common types of exits, and what others have done right—or wrong.

Let’s get into it.

A business exit strategy is a clear plan for how a business owner will leave the business.

It’s not something only big companies think about. Even a small shop, a solo consultant, or a growing startup needs one.

This plan explains how the owner will exit—whether by selling the business, passing it on to a family member, or closing it down. It also outlines when the exit might happen and what steps will be taken to make it smooth.

The goal is simple: leave the business in the best way possible.

That could mean getting the highest sale price, keeping jobs for employees, or protecting the company’s name.

Exit strategies aren’t only used when a business is failing. In fact, many successful business owners plan their exit years in advance. Some want to retire. Others want to start a new project. Some just want to cash out after years of hard work.

Having a strategy also helps in emergencies. If something unexpected happens—like illness or financial stress—the plan is already in place.

Most people start a business with one big goal—growth. But they rarely think about the end. That’s a mistake.

A business exit strategy helps you plan for that end. It gives you control.

Without one, you could lose money, hurt your brand, or leave your staff in a tough spot.

Let’s break it down.

According to a survey by the Exit Planning Institute, nearly 70% of business owners don’t have an exit plan. And here’s the thing—most of them end up leaving because of unexpected reasons like burnout, illness, or personal changes.

When you don’t have a plan, you’re more likely to rush the process. That can mean selling the business for less than it’s worth. Or handing it off to someone who isn’t ready.

A strategy makes sure you’re not guessing. It helps you:

Let’s say you run a profitable local bakery. If you want to retire in five years, you can use this time to train a manager, clean up your financial records, and increase your business value. That’s smart planning.

Without a plan, you might just shut the doors one day. That’s not good for anyone.

There’s no single way to leave a business. The right path depends on your goals, your company’s size, and how fast you want to exit. Below are the most common exit strategies. Each one has different benefits, risks, and steps.

This is one of the most popular ways to exit a business. A larger company buys your business, either to expand or remove competition.

If your business has strong profits, loyal customers, or valuable assets, it becomes a good target for buyers.

Example:
In 2018, Microsoft bought GitHub for $7.5 billion. GitHub’s strong developer base and growing platform made it a smart purchase.

Mergers and acquisitions can bring a big payout. But the process takes time and requires planning, especially with legal and financial paperwork.

If you're not the only owner, you might sell your share to a business partner or investor.

This keeps the business running without much change. It also makes things easier since the buyer already knows how the company works.

This method is often faster and simpler than selling to someone outside the business. But you might not get the highest price, especially if it's a "friendly deal."

An IPO means you turn your private company into a public one by selling shares on the stock market.

This is a big move. It takes money, time, and approval from regulators. But if it works, the rewards can be high.

Example:
Airbnb went public in 2020. It raised over $3.5 billion on its first day of trading.

Going public boosts your company’s profile and can bring in major funds. But it also adds pressure, rules, and public attention.

In this plan, your employees or leadership team buy the business from you.

It’s a smooth handover since the new owners already work in the company. This strategy works well if you want to step back but keep the business culture strong.

Example:
The buyout of Thomas Cook in 2013 by its own leadership helped save the company from collapse.

MBOs usually require funding or outside loans, so timing and preparation matter.

Some business owners want to pass their company on to children or other family members.

This keeps the business in the family, which can feel meaningful. But it can also be tricky. Not every family member wants to run a business—or should.

Example:
Ford Motor Company is still run by the Ford family. They hold key roles and a large stake in the business.

Family transitions work best when there’s training, trust, and a clear plan in place.

Liquidation means closing the business and selling off assets like equipment, stock, or property.

This strategy is fast, but it usually brings in less money than other exits. It works best for small businesses with few staff or when there are no buyers.

If the business is no longer profitable or the owner needs to exit quickly, liquidation might be the only option.

Bankruptcy is used when a business has more debt than it can handle.

It’s a legal process. Assets are taken and used to pay back creditors. While it ends the business, it can offer some protection from lawsuits or debt collectors.

It should be a final step, used when no other option makes sense. It impacts credit and can make starting another business harder.

You don’t need to guess your way out of a business. A clear, step-by-step plan helps you exit with less stress and better results. Below is a simple framework to guide you through the process.

Let’s start with the first three steps.

Before anything else, know what you want.

Do you want to retire with a lump sum? Do you plan to start another business? Or are you hoping a family member will take over?

Your goals will shape everything. Some people want the highest price. Others care more about keeping their team employed. Some want to leave fast, while others prefer to stay involved for a while.

Think about:

Clarity here helps you choose the best path.

You can’t sell something if you don’t know what it’s worth.

Many owners guess their business value—and get it wrong. A proper business valuation uses real numbers, not gut feelings. It looks at profits, assets, debts, industry, and future growth.

According to the IBBA, 70% of small businesses are sold for less than what owners expect. That’s often because they skip this step.

You can:

Knowing your value also helps you spot weak areas. You’ll know what to fix before putting the business on the market.

Now ask: who could take over?

That depends on your goals. If you want top dollar, selling to a competitor or investor might work. If you want the company culture to stay intact, an internal buyer could be better.

Options include:

Make a list of possible buyers. Think about their interest, budget, and experience. This helps you plan how to pitch the business later.

Buyers don’t just want a good idea—they want proof it works.

That means clear paperwork.

Start by writing or updating your standard operating procedures (SOPs). These are the step-by-step instructions for how your business runs. They cover daily tasks, customer service, inventory, payroll, and more.

Next, prepare for due diligence. This is where a buyer checks everything before signing a deal.

You’ll need:

Having this ready builds trust. It also speeds up the sale.

You shouldn’t do this alone.

Even if your business is small, good advice can save you money and trouble. A business lawyer can check contracts and help with ownership transfer. An accountant or tax expert can guide you through the tax impact of selling.

You might also want a business broker, especially if you're selling to an outside buyer. They help you find the right match and handle negotiations.

Yes, there are fees. But the value they bring often makes up for it.

Timing matters more than most people think.

Selling during a high-profit year or when demand is strong can increase your sale price. On the flip side, selling in a down market or during a crisis might mean taking less.

If you plan years ahead, you’ll have more control.

Look at:

Many experts recommend preparing 3–5 years before you plan to exit.

Once a deal is made, the job isn’t done.

You need to transfer ownership smoothly. That might include:

If the process is messy, it hurts your legacy. If it’s clean, the business keeps running and your name stays strong.

Some owners stay involved for a few months. Others leave right away. Do what fits your plan—and your buyer’s needs.

These two terms sound similar, but they’re not the same. Business owners often mix them up, especially when facing money problems.

Let’s clear that up.

Liquidation means you close the business and sell everything it owns—equipment, stock, furniture, even your website or domain name.

The money you collect goes to:

If anything is left, the owner keeps it.

Liquidation is often voluntary. It’s chosen when the business is no longer profitable, or the owner doesn’t want to keep it running.

Example:
A local bakery closes after 10 years. The owner sells the ovens, display cases, and brand name to pay off suppliers.

Bankruptcy happens when the business can’t pay its debts and needs help from the courts.

You file legal papers. The court reviews your case. Then one of two things happens:

Bankruptcy affects your credit score and may limit your ability to run another company for a while.

Example:

In 2023, WeWork filed for bankruptcy. It stayed open but restructured its debts to stay afloat.

The short answer? Much earlier than most people think.

Many business owners wait too long to think about leaving. They focus on day-to-day work and push exit planning to the side. But that delay can cost them.

The Exit Planning Institute reports that over 50% of business exits are forced—due to health problems, burnout, disputes, or sudden changes. When you're not prepared, you're more likely to accept a lower offer or close the business in a rush.

Ideally, you should start planning your exit at least 3 to 5 years before you want to leave. That gives you enough time to clean up your books, improve profits, and build a strong team. If you're thinking of selling, this also helps raise your business value.

Even if you’re not ready to leave yet, having a basic plan helps. It acts like a backup. You can update it as your goals change.

Think of it like selling a house. You wouldn’t wait until the day you move out to fix the roof or paint the walls. You’d plan ahead to get the best price.

It works the same way here. Early planning gives you better deals, less stress, and more choices.

A business exit strategy isn't something you figure out at the last minute. It's a smart move that helps you stay in control—whether you're selling, passing things on, or closing shop.

The truth is, every business needs a way out. Not because things are going wrong, but because planning your next step is part of building something that lasts.

Start thinking about your exit strategy now. Even a simple plan can save you time, money, and stress later.

You built your business with care. Make sure you leave it the same way—on your terms, with no regrets.

A good exit strategy depends on your goals. If you want a high return, selling to a buyer through a merger or acquisition is often best. If you prefer a smooth handover, a management buyout or family succession may work better. Each option has pros and cons, but a good plan is one that matches your timeline, financial goals, and the future you want for the business.

Liquidation is the exit strategy that involves selling off your business assets. This means closing the business and selling things like equipment, stock, or property. The money goes to pay off debts and remaining funds go to the owner. Liquidation is often used when the business can’t be sold as a whole or needs to shut down quickly.

Your business needs an exit strategy to stay prepared. It helps you avoid panic decisions and gives you control over how and when you leave. A clear exit plan protects your money, reduces stress, and allows for a smooth transition. It also helps if something unexpected happens, like illness or financial pressure.

Exiting a business can take anywhere from a few months to a few years. The timeline depends on the type of exit. A sale to an outside buyer may take 6 to 12 months or longer. A public offering or merger can take years. If you plan early—at least 3 to 5 years ahead—you’ll have more control and better results.