What is an exit strategy?
Short answer: An exit strategy is the planned route for owners or investors to turn their stake in a business into cash or another liquid asset.
In corporate finance, the exit strategy affects how a company is prepared, which buyers or investors are approached, and what evidence is needed to support valuation.
Common exit routes
- Trade sale: Selling the business to a strategic buyer that wants market access, capabilities, customers, technology, or scale.
- Financial sponsor sale: Selling to a private equity or growth investor that plans to build the business further.
- Management buyout: Selling to the existing management team, often with external debt or equity funding.
- IPO: Listing shares on a public market. This is suitable only for companies with the scale, governance, reporting quality, and market profile required by public investors.
What makes an exit strategy credible
A credible exit strategy links the company's value drivers to likely buyer logic. It should address timing, valuation evidence, management readiness, diligence materials, and the founder's role after completion.