Exit Option

What Is an Exit Option?

An exit option is a stipulation within a business plan or project that allows a company to discontinue the plan with limited financial consequences. An exit option can typically be exercised after pre-stated key developments have occurred within a project or business plan.

Not to be confused with options trading on underlying securities, an exit option refers to investment options and capital budgeting decisions, such as whether to pursue an investment option, discontinue investment or pursue other business options.

How Exit Options Work

Although exiting a business makes sense for those approaching retirement or those who crave a lifestyle change, for many business owners, it's better to white-knuckle it through rough patches, rather than exiting their companies altogether.

Exit options may also be built into research and development plans or smaller business projects that may not remain viable financially after commencing.

Shuttering a Business

Exit options also refer to the action of closing down businesses. According to consultant Pino Bacinello, there are various exit options available to business owners who are looking to leave their operations behind, including the following solutions:

“If this sounds complicated, that’s because it really is,” Bacinello notes. “There are many moving parts and options, and each situation is unique and different, requiring specific individual considerations."

Retiring a Product

It is sometimes a wise decision for a business to retire a product or a service from the marketplace, for any number of reasons, including the following examples:

In all of these aforementioned situations, it makes logical business sense to leave behind the research and development of product silos that will likely contribute to a company's dwindling profits. This corrective move opens the door for different product-lines that offer higher possibilities for success.