Exit Strategy


A contingency plan which is executed by a trader, investor, business owner or a venture capitalist with an objective to liquidate a position in a financial asset or to dispose tangible business assets after a predetermined criterion has been satisfied is called as an Exit Strategy. It may be executed for the purpose of exiting from a non-performing investment or to close a business which is not generating any profits. In such a case, the purpose of exit strategy is to limit the loss. 
This strategy can also be executed when a business venture or an investment has fulfilled its profit objective. Other reasons to implement this strategy includes a significant change in market conditions as a result of catastrophic events, legal reasons like estate planning, divorce or liability lawsuits; or when the owner or investor is planning to retire and wants to cash out.
An exit strategy is said to have an impact and be effective when it is planned for every positive and negative contingency regardless of the investment type, business venture or trade that has been entered into. Planning is an integral part in this strategy as it determines the risk associated with the trade, business venture or the investment.

If start-ups cannot meet their predetermined milestones in spite of all their business operations then good businesses always plan for a comprehensive exit strategy. Most of the venture capitalists insist that a well-planned exit strategy is included in a business plan before it commits any capital. Business people can also choose to exit if they are given any lucrative offers tendered by other party for the business.  

Comments

Post a Comment

Popular posts from this blog

Drop Shipping

Image
A supply chain management method where the retailer does not keep stock of goods but transfers orders received from customers and its shipment details to the manufacturer, wholesaler or retailer, and then they ship it directly to the customer is called as drop shipping. Retail businesses make profit with the difference in wholesale and retail price but there are retailers who earn an agreed percentage of sales as commission which is paid to the retailer by the wholesaler. Drop shipping gained popularity as the seller need not keep goods in stock and they don’t have to take the stress of packing and dispatching them. The drop shipping retailer keeps goods on display in his physical brick and mortar store or even provides online product catalogue or hard copy to its customers for reviewing and purchasing.  This occurs when small retailers receive single large order for a product. Here, he arranges for the goods to be shipped directly from the manufacturer or distributor ...
Read more

Bid-Ask Spread

Image
The amount by which the ask price is exceeded by the bid price for an asset in the market is called as a bid-ask spread. It is essentially the difference between the highest price a buyer is willing to pay for an asset and probably the lowest one at which the seller would be willing to accept. An individual who is looking forward to sell will receive the bid price at which he is looking to buy, will end up paying the ask price. In short, bid-ask spread is the difference between the highest price which a buyer is willing to pay for an asset and the lowest price a seller would be willing to accept. The transaction cost involved here is referred to as spread and the price takers buy at the ask price to sell them at bid price whereas market maker buys at bid price and sells them at the ask price. The bid represents demand, and ask is used to represent the supply for an asset. The bid-ask spread is used as the de facto measure for understanding market liquidity. More Info : ...
Read more

Bailment

Image
In common law, bailment refers to a contractual transfer of assets or property from a bailor to a bailee where the bailor temporarily relinquishes possession and not ownership of the property. It describes a legal relationship where a personal property’s physical possession is transferred from one person to another who later takes possession but not total ownership as such. Bailment, in finance, means legitimate transfer of securities like shares of stock from one individual (owner) to another for short selling. Here, short selling means an investment or trading strategy where people bet on a decline in the price of securities. An example of bailment is a leased apartment where a tenant possesses and uses the apartment but in reality he does not own it. There are three types of bailments: a.        A bailment which benefits both the bailor and bailee b.        A bailment that benefits only the bailor c. ...
Read more