Today, given the instability of the market environment, the unpredictability of changes in the external environment, incomplete information and limited access to it, the growing number of competitors in the market, an important task for the successful development of the company is the need to develop a strategy.
What is the Exit strategy?
Strategic planning may seem overwhelming, but it is indispensable for an organization that seeks to achieve greater heights and maximum impact. By adopting a defined strategy, an organization evaluates various pros and cons, a broader strategic perspective, expectations and threat analysis, opportunities, strengths, and weaknesses about the current business dynamics.
A business Exit strategy is a method by which a business owner plans to leave the business or close the business. Ideally, an entrepreneur develops an exit strategy in their initial business plan before actually entering the business. Choosing an exit plan can influence business development decisions.
Exit strategy template includes the following steps:
- Focus on business value;
- Decide on the best time to sell;
- Investigate options;
- Do the calculations;
- Market the sale;
- Communicate with your employees;
- Sale to a third party.
Types of Exit strategies
Within the framework of the Exit Strategy, there may be several alternative options: liquidation, sale of a business, reduction and reorientation, disintegration.
- Liquidation is the most radical reduction option associated with a complete sale of inventories and company assets. It should be borne in mind that the cost of assets sold separately may be significantly lower than the cost of the organization itself. This is mainly due to the loss in the liquidation of intangible assets, which in some cases make up the largest share of the organization’s integral assets.
- The most attractive alternative to this strategy may be the sale of the organization to a firm for which this area of business may be of interest, for example, in terms of strategic alignment with its core business.
- Reduction and reorientation are used when a firm needs to reduce part of its activities (product range, market presence, production volume, etc.), to abandon the production of unprofitable products and poorly functioning distribution channels. It also provides for the search for effective ways to maintain or increase profits by reducing the number of operations.
- Disintegration as an option for a reduction strategy involves the separation of activities or individual operations that have not been proven to be effective. Disintegration within the sectoral industrial cycle involves the refusal of the firm from certain production chains and the transition to external transactions with independent elements of the industry’s marketing system.
- Mergers and acquisitions (M&A) of companies – sets of actions aimed at increasing the total value of assets through synergy. M&A of companies are a special class of economic processes of business and capital consolidation that take place at the micro – and macroeconomic levels, and as a result of which larger companies are formed on the market instead of several smaller ones.
- IPO (Initial Public Offering) is the process of the initial public offering of a company’s shares on the stock market. The company offers investors its shares at a certain price, that is, the first investors buy shares directly from the issuer – at this moment the company receives money for development. And after that investors begin to trade these shares with each other, and the price for them can both rise and fall – it all depends on the state of affairs in the company and the mood of investors.