Business Exit Strategy – Definition

Cite this article as:"Business Exit Strategy – Definition," in The Business Professor, updated September 24, 2019, last accessed October 21, 2020,


Business Exit Strategy Definition

A business exit strategy is a strategy used by business owners or entrepreneurs to minimise their risks when there is a plan for a change of ownership or transition in the business. Traders, venture capitalists and investors also use business exit strategies. Oftentimes, this strategy entails an individual exiting their position in a firm or company by selling their portion of ownership a company to other investors or an outside company.

Aside from investors selling their shares of ownership of a company, a business exit strategy could also mean a business owner selling their company. Exit strategies are often used to reduce losses that business owners, investors or entrepreneurs accrue when the ownership of a business changes.

A Little More on What is a Business Exit Strategy

A business exit strategy is not an impromptu plan used by entrepreneurs, rather, exit strategies are incorporated into the business before it is initiated. There are different kinds of exit strategies and it is the responsibility of a business owner, entrepreneur, investor or trader to develop an exit strategy before venturing into a business. When used, business exit strategies guarantees an entrepreneur or investor substantial profit of the business is successful and limited losses if the business is unsuccessful.

The prominent types of business exit strategies are;

  • Strategic acquisitions
  • Initial public offerings (IPO)
  • Management buyouts (MBO)

Each business exit strategy has its benefits different from other types, this means that a business owner is responsible for selecting the type of exit strategy that is most suitable for the business situation.

Business Exit Strategy and Liquidity

Before a business owner can use any of the types of business exit strategies, it is important to do a business valuation. Typically, an exit strategy offers a business owner some level of liquidity, this means that to determine the fair value of a business, valuation is key. This will also help select the best strategy that will offer the highest liquidity. For instance, if an business owner sells his ownership of a company through strategic acquisition, it means that he can access a huge amount of liquidity within a short space of time. The condition of the market is another factor that must be considered when considering a business exit strategy in relation to liquidity.

Business Exit Strategy: Which Is Best?

Oftentimes, business owners worry about the exit strategy that is best for them or their business. The piece below will provide an insight that will help entrepreneurs select the best exit strategy.

First, the type of business you run, the industry you operate in and your business size should be considered when selecting an exit strategy. The goal of the strategy is another important factor. For instance, if a business is concerned about making as much money as possible before it folds up and another business only needs a bit of liquidity to revamp and re-strategize, the types is exit strategies they will use are different.

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Academic research on “Business Exit Strategy”

Canadian business angel perspectives on exit: a research note,Carpentier, C., & Suret, J. M. (2015). Canadian business angel perspectives on exit: a research note. International Small Business Journal, 33(5), 582-593. This research note analyses the investment harvest expectations of a large Canadian angel group. These angels co-finance large high-tech deals; on average, greater than CAN$1.2m. Canadian low listing requirements and the junior stock market make the initial public offering a possible exit mode. However, angels prefer a trade sale, consistent with the proposition that large acquirers can fully and rapidly exploit innovations and offer better exit values. Securities regulation impedes initial public offering exit; reluctance to pursue this exit strategy however, increases with angel experience. The classical funding escalator, including venture capitalists, no longer appears to be a dominant model.

What is entrepreneurial failure? Implications for future research,Jenkins, A., & McKelvie, A. (2016). What is entrepreneurial failure? Implications for future research. International Small Business Journal, 34(2), 176-188. Research into entrepreneurial failure is increasing in prevalence. However, there remains a lack of clarity surrounding how failure is conceptualized. This is an important issue because how failure is conceptualized influences the relevance of research questions posed and the comparability of findings across studies. In this article, we review conceptualizations of entrepreneurial failure including at two levels of analysis (firm and individual) and perspectives of failure (objective and subjective). We discuss the implications these conceptualizations have for future research, including the sampling frame and questions scholars ask.

Crowdfunding of small entrepreneurial ventures, Schwienbacher, A., & Larralde, B. (2010). Crowdfunding of small entrepreneurial ventures. Handbook of entrepreneurial finance, Oxford University Press, Forthcoming. An inherent problem that entrepreneurs face at the very beginning of their entrepreneurial initiative is to attract outside capital, given the lack of collateral and sufficient cash flows and the presence of significant information asymmetry with investors. Recently, some entrepreneurs have started to rely on the Internet to directly seek financial help from the general public (the “crowd”) instead of approaching financial investors such as business angels, banks or venture capital funds. This technique, called “crowdfunding”, has made possible to seek capital for project-specific investments as well as for starting up new ventures. In this book chapter (forthcoming in the Handbook of Entrepreneurial Finance at Oxford University Press), we discuss crowdfunding as an alternative way of financing projects, with a focus on small, entrepreneurial ventures. We provide a description of crowdfunding and discusses existing research on the topic, putting crowdfunding into perspective of entrepreneurial finance and thereby describing factors affecting entrepreneurial preferences for crowdfunding as source of finance. We elaborate different business models used to raise money from the crowd, in particular with respect to the structure of the crowdfunding process. Building on this discussion, we present and discuss extensively a case study, namely Media No Mad (a French startup). Finally we conclude with recommendations for entrepreneurs seeking to make use of crowdfunding and with suggestions for researchers about yet unexplored avenues of research.

Starting anew: Entrepreneurial intentions and realizations subsequent to business closure,Schutjens, V. V., & Stam, E. F. (2006). Starting anew: Entrepreneurial intentions and realizations subsequent to business closure (No. ERS-2006-015-ORG). We know that most businesses fail. But what is not known is to what extent failed ex-entrepreneurs set up in business again. The objective of this article is to explore potential and realized serial entrepreneurship. Based on three disciplines – psychology, labour economics, and the sociology of careers – we formulated propositions to explain (potential) serial entrepreneurship. We tested these propositions empirically with a longitudinal database of 79 businesses that had closed within 5 years after start-up. A large majority of the ex-entrepreneurs maintained entrepreneurial intentions subsequent to business closure, while almost one in four business closures were followed by a new business (serial entrepreneurship). Our results show that the determinants of restart intention (potential serial entrepreneurship) and actual restart realization (realized serial entrepreneurship) are different. Ex-entrepreneurs who are young, who worked full-time in their prior business, and who recall their business management experience positively are likely to harbour restart intentions. Only ‘being located in an urban region’ transpired to have a significant effect on the start of a new business. Although entrepreneurial intentions are a necessary condition for the start of a new business, this study shows that the explanation of entrepreneurial intentions is distinct from the explanation of new business formation subsequent to business closure.


Small business exit: Review of past research, theoretical considerations and suggestions for future research, DeTienne, D. R., & Wennberg, K. (2013). Small business exit: Review of past research, theoretical considerations and suggestions for future research. Forthcoming chapter in” Small businesses in a global economy: Creating and managing successful organizations”(edited by S. Newbert). Westport, CT: Praeger. In this chapter we look at exit as a multidimensional and multidisciplinary phenomenon that may involve processes and outcomes operating at multiple levels of analysis. We do so because entrepreneurship research is often considered a phenomenon-driven academic field (Shane, 2003; Sorenson and Stuart, 2008) and entrepreneurship is in itself a multidimensional concept: its definition depends on the focus of the research undertaken (Davidsson, Low, & Wright, 2001). In this field, it is surprising that exit has received much less attention than the phenomenon of entry, growth, or innovation among new firms; however, there has been renewed interest in this topic and this research crosses many disciplines and multiple theoretical perspectives. In this chapter, we provide an in-depth review of that research which is applicable to small business. We review disciplinary approaches to research on exit, and then present a literature review of 28 empirical studies of entrepreneurial exit during the last 29 years. We summarize these studies under a number of topical areas and discuss the potential for further development in these areas. In doing so, we provide a framework and opportunities for future research.

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