Exit strategy why

Actively scan device characteristics for identification. Use precise geolocation data. Select personalised content. Create a personalised content profile. Measure ad performance.

Select basic ads. Create a personalised ads profile. Select personalised ads. Apply market research to generate audience insights. Measure content performance. Develop and improve products. List of Partners vendors. An exit strategy is a contingency plan that is executed by an investor, trader, venture capitalist , or business owner to liquidate a position in a financial asset or dispose of tangible business assets once predetermined criteria for either has been met or exceeded.

An exit strategy may be executed to exit a non-performing investment or close an unprofitable business. In this case, the purpose of the exit strategy is to limit losses. An exit strategy may also be executed when an investment or business venture has met its profit objective. For instance, an angel investor in a startup company may plan an exit strategy through an initial public offering IPO.

Business exit strategies should not be confused with trading exit strategies used in securities markets. An effective exit strategy should be planned for every positive and negative contingency regardless of the type of investment, trade, or business venture. This planning should be an integral part of determining the risk associated with the investment, trade, or business venture. A business exit strategy is an entrepreneur's strategic plan to sell their ownership in a company to investors or another company.

An exit strategy gives a business owner a way to reduce or liquidate their stake in a business and, if the business is successful, make a substantial profit. If the business is not successful, an exit strategy or "exit plan" enables the entrepreneur to limit losses. An exit strategy may also be used by an investor such as a venture capitalist to prepare for a cash-out of an investment.

For traders and investors, exit strategies and other money management techniques can greatly enhance their trading by eliminating emotion and reducing risk.

Before entering a trade, an investor is advised to set a point at which they will sell for a loss and a point at which they will sell for a gain. Money management is one of the most important and least understood aspects of trading. Many traders, for instance, enter a trade without an exit strategy and are often more likely to take premature profits or, worse, run losses. Traders should understand the exits that are available to them and create an exit strategy that will minimize losses and lock in profits.

In the case of a startup business, successful entrepreneurs plan for a comprehensive exit strategy in case business operations do not meet predetermined milestones. If you choose this route, just know that you will need to use cash to pay your shareholders if there are any as well as eliminate any debts. There is no perfect time to execute your business strategy.

The cycle your business is in will impact how sellable it is. This could determine when to open an exit strategy. Less mature, yet booming businesses — while showing off how profitable they are — might need more time to grow before getting ready to sell. You just have to be ready. When dissolving a partnership, make sure to review your agreement. Make sure everyone is on the same page down to the vote. A successful acquisition, liquidation, or any settlement involves paying debts and distributing the assets properly.

Also, check with state policies for proper documentation. Another less common way is to be a booming startup in a frothy environment so you can raise money at elevated situations. Being a business owner means knowing how to plan ahead. Success means planning for any possible situation that lies ahead, especially when it comes to the future of your business.

Search for:. Search less. Close more. See Plans. Wealth Management. Financial Analysis. Your Privacy Rights. To change or withdraw your consent choices for Investopedia. At any time, you can update your settings through the "EU Privacy" link at the bottom of any page.

These choices will be signaled globally to our partners and will not affect browsing data. We and our partners process data to: Actively scan device characteristics for identification. I Accept Show Purposes. Your Money. Personal Finance. Your Practice. Popular Courses. Business Essentials Guide to Mergers and Acquisitions. Business Business Essentials. What Is a Business Exit Strategy? Key Takeaways A business exit strategy is a plan that a founder or owner of a business makes to sell their company, or share in a company, to other investors or other firms.

Initial public offerings IPOs , strategic acquisitions, and management buyouts are among the more common exit strategies an owner might pursue. If the business is making money, an exit strategy lets the owner of the business cut their stake or completely get out of the business while making a profit.

If the business is struggling, implementing an exit strategy or "exit plan" can allow the entrepreneur to limit losses. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation.

This compensation may impact how and where listings appear.