An exit strategy refers to the plan of an entrepreneur, venture capitalist, or investor to get out of a business or investment situation if necessary. This could be due to the fact that the losses may not make the operation of the venture or it could simply be because the investor wants to get his money back and pull out of the operation. Some like to think of an exit strategy as the first chance of the investor to trade in his non-liquid assets for liquid assets; that is, shares to cash.
When drawing up a business plan, the exit strategy should always come into play. Indeed, experts say that the best business plans incorporate an exit strategy for the investors. This is to show potential investors that they will receive something for their investment, no matter what happens.
One exit strategy that is commonly used is a buyout. In other words, the entire business is simply sold. This means that the money received from the sale can be used to pay off the investors. Quite the opposite of a buyout is to recapitalize. Recapitalization can also be used as an exit strategy in that new funding will be sought for. This funding will then be used to pay off the investors.
These are only two of the possible exit strategies that can be used today. What is important is that one considers all the potential situations and factors that can affect the business. These should be incorporated into the business plan at the outset.