When I put my teeth in something, I don’t plan a way out because planning an exit means I failed.

My plan is to retire when I’m 80 if God allows me to leave that long.

You must see your way out of your company.

Lack of seeing a way out leaves your company to die or wrangles that derail the growth of your company.

An exit strategy helps you as a business owner plan for eventualities like death or sickness or vacations times, when like ByteDance (TikTok) owner you leave the business world to read books and gaze at the sunshine.

Your exit from your business may seem like you’re parting ways with your baby but we all need a break to go explore the moon like Jeff Bezos, don’t we?

Chairmen/women, Company Presidents and Founders keep leaving their companies for the next of kin or for the next best person because, their stay is now redundant; no innovative ideas are coming, because of exploring other important hobbies or businesses.

Whatever the reason, it’s important to have an exit strategy to remove your control and see where the others (managers, kids or whoever you leave your company with) take your company.

After all, wasn’t the aim of your business to make a difference to others?

When you own a business, either a startup or a growing business, it is important to know what your end goal is and how to get there.

In that process of starting or growing a business, you need to have a plan of when you need to leave the business if things do not work out anymore.

This may sound like a vain attempt in the business venture, but it has its advantages.

Knowing when to exit a business is a tough choice and each situation is different.

That is why we plan a business exit strategy. Just like one cannot get on a bus when the destination is wrong, an exit strategy is a vital part of any business.

Business strategies take into consideration a company’s long term goals.

An exit strategy is also important when you want to set up the right business expectations. 

Is An Exit Strategy Ideal For An Effective Business Plan?

A business plan is a written outline of a business’s objectives and the steps followed to achieve those objectives. 

What happens if there is a slip-up and the business can no longer realize its objectives? 

Business owners may want to leave a market, close a business or cease to trade. This could be a personal preferred choice or may be influenced by external factors. 

An exit route is important to ensure that the owners of the business can get out of the impending collapse of business with minimal or no damage.

What is an Exit Strategy?

An exit strategy is a plan to get out of owning or running a business. 

This means the end of a business.

It may or may not be a case of abandonment, as discussed in the Types of Exit Strategies.

There is a range of reasons for this occurrence, one of them being that it is a company’s long term objective to sell the business. 

This plan includes an outline of how the owner intends to exit the business and what the owner intends to do with their newfound freedom after the sale and transfer to new owners have been completed. 

Reasons for Having an Exit Strategy

Some businesses are run as a partnership. A lot of disputes, mismanagement may arise as a result hence the need for having an exit strategy. The partners may also decide to dissolve the business altogether. An exit strategy is important because it outlines how their resources and profits are going to be distributed among them. 

There could arise uncertain predicaments like death and long term illness of the business owner. In this case, an exit strategy should be put in place to ascertain the future of the business. 

An owner may want to retire and with no one to ensure business continuity, may need to adopt an exit strategy. 

The business may have reached its furthest potential. This is when all the goals and objectives have been checked out and you have taken it as far as you can.

When the business is underperforming, an exit strategy is important to ensure you do not incur many losses and also avoid debt accumulation. 

A business may need new technology, new resources and new equipment. When an owner lacks sufficient working capital to keep the business running, and does not want to take loans and accumulate debt, he may want to plan an exit route.

Consumer preferences tend to change. They may require new products. For a business to ensure customer satisfaction, there is a need to adapt and learn the new skills and an effective business approach, before continuing to trade. 

A business owner may want to venture into a different business. He or she could be looking for something that is less stressful, more challenging and has more promise. In this case, the owner should plan an effective exit strategy. 

Types of Exit Strategies

These apply to both small and big business companies. 

  1. Mergers and Acquisitions

A merger is when two companies come together for a common purpose.

An acquisition is when one company buys ownership of another company. This company may buy you for assets, customers or technology. 

Mergers and acquisitions involve merging or selling to another company, usually a larger one, or a competitor. Competitors become one big company and gain economies of scale.

There is sharing of equipment, market and distribution networks. 

This is one way to raise extra capital to ensure the survival of a business. It is an effective and common method for stable and profitable companies. 

When planning this as an exit strategy, it is important to know who will buy you, why they will buy you and how they should know about you.

  • Advantages of Mergers and Acquisitions 

Competition is eliminated as the rival companies can now work in harmony.

Acquisition of key management employees and staff.

Lowered production costs due to economies of scale.

Access to a new sales network.

An extended supply chain 

Access to a wider market segment. 

  • Disadvantages of Mergers and Acquisitions 

Less competitive pressure to hold the prices down because a producer is lost. Customers, therefore, have to bear with the increased prices on products due to monopoly. 

  1. Initial Public Offering (IPO)

This is the most common type of exit strategy. It involves selling a portion of the company’s shares in the public market. 

The main purpose of IPO is to raise additional capital for business expansion. Management is still in control of the business and once they have generated enough revenue, can but back the shares.

Before a company sells its shares to the public, it has to go through a lot of hoops before it gets an IPO. They could check for the size of the company or if it has a good reputation. 

  • Advantages of IPO

IPO is important because it provides an exit opportunity for a business.

The business can raise capital to support business growth and continuity.

When a business sells its shares to the public, it creates awareness of its existence as it becomes known to the public. This is important because it penetrates new customer segments. 

  • Disadvantages of IPO

Before an IPO is given out, a business has to go through a certain process. This process contains a lot of regulatory requirements to check how credible the business is. 

A business may lose control of its ownership as it focuses more on the needs of its potential customers and not on the needs of the business. 

Getting an IPO is an expensive procedure. 

  1. Cash Cow

This is when an owner appoints someone to manage and run a business. The business owner can then undertake new projects while the business is in continuity. 

The owner can still monitor the business from time to time, even after handing it out to someone else. 

At the end of the year or accounting period, profits should be sent to the owner and reinvested in a startup or the initial business, to boost cash flow. 

  1. Liquidation 

This is also referred to as business closure. It is most appropriate in the event of business failure. 

This is the easiest exit strategy as there are no negotiations or agreements between buyers or sellers.

Trading will cease, business assets will be sold off, machinery auctioned and the business closed down.

The business owner must act as soon as they acknowledge that the business is failing and move fast before it becomes a real liability, through an accumulation of debt and increased losses.

  1. Passing on to a successor 

This type of exit strategy allows the business owner to pass on or transfer the business to their heir or next generation. 

The owner identifies someone within the family, gets them involved and trains them to take over the business. 

Business stays within the family and the owner may still have an influence on decision making. He or she may be called upon to give expert opinions or input on matters arising in the future. 

Succession planning must be carried out in advance and through an appropriate process 

  1. Selling to a close friend

This is a simple exit strategy and is appropriate for when you need to make quick cash. The buyer looks at the potential of the business and makes an offer to buy.

The potential buyer should be an individual who has the right skills and business knowledge to run business operations. 

The owner should spend time with the person in the business, mentor them on how to produce, what to watch out for and how to hone skills.

Selling the business allows the owner to use the cash gotten to reinvest into other startups or projects.

  1. Management or employee buyout 

This exit route may be prompted to disinvest from a viable business. The employees or management may seek to buy the business to secure their employment. 

Instead of making employees redundant, employees come together, buy a business from the owner and continue to run the business so that they still have employment. 

This means they are workers as well as owners.

What Should You Know When Planning an Exit Strategy?

  • Establish your objectives in terms of your financial requirements, time scale, post scale and formulate who your ideal buyer is.
  • Position the business to run without the owner, by creating an internal expertise or use external resources. 
  • Eliminate the reliance on one aspect of revenue.
  • Make sure you understand your figures, both current and the future.

What are the Key Elements of an Effective Exit Strategy?

  • An outline of the business’s goals and objectives and an action plan to achieve them. 
  • An analysis of the value of the business. 
  • Ways to optimise the value of the business.
  • Exit strategy options.
  • Pros and cons of your different exit alternatives 
  • Qualified buyer’s list.

How Do I Plan for an Exit Strategy in Kenya?

Determine the business’s financial position for the year. This is to see what financial requirements are needed and if the business can keep running or has become liquid.

Address your current investors and stakeholders about your intention to exit the business to avoid unnecessary lawsuits, by ensuring they get repaid what they invested.

Have multiple exit strategy options and figure out which one is most suited to your needs.

Inform your customers that you will no longer be in business. 

Formulate a way to retain your loyal clients. 

Why is an Exit Strategy Important?

An exit strategy is important when you want to attract investors. Investors want a return on their money, something known as Return On Investment (ROI).

Investors are business savvy and they need to know that they will gain from the money you took from them after you sold them shares with your idea.

Outline future scenarios of the company to the investors and an exit plan in case of business failure.

An exit strategy is also important when you want to keep track of your progress. Identify strengths and weaknesses and improve on them. If it is not salvageable, then an exit strategy is the best fit.

What are the Mistakes in Planning an Exit Strategy?

Planning your exit strategy as an acquisition by a larger company e.g Alibaba. You have to ensure that this exit strategy is viable. Does this company know about you? Do they need you? How can you make it happen? Do you have connections with these companies? The plan should be attainable.

When an exit plan is too far, investors tend to shy away from your business. Things tend to slip. Investors look for an exit strategy that lasts around 3 to 5 years.

Not having a defined exit route via IPO or through mergers and acquisitions. This is equivalent to not having a plan. 

Is Creating an Exit Strategy Planning for Failure?

No, I used to believe having an exit strategy means planning for failure, not anymore.

While the whole idea may seem vainglorious and counterproductive, planning an exit strategy for a business has numerous advantages.

Any business, whether a startup or a growing business should implement having an exit strategy into a business plan.

It is never too early to start thinking about what might happen when a business ends. It’s attractive to investors when you have an exit strategy no one wants to work with someone that doesn’t see the future.

As a Kenyan business owner, do you have a startup?

Whether you’re a freelance writer, own an online business or offline business, have you ever thought about what your business without you looks like?

Do you also believe having an exit strategy is like planning for failure?

Is that why you didn’t have an exit strategy for your business?

Or did you believe exit strategies are left for billion-dollar companies and you don’t see your company having such a fortune?




Leave a Reply

Avatar placeholder

Your email address will not be published.


Online Businesses / Online Work in Kenya