Moving on from your business works best when you plan well in advance. It’s never too early to start planning.
This way, you choose how to exit and have time to get everything ready for the new owner. Plus, with a clean exit, you can walk away with a substantial payout and know that your business is in good hands.
You’ll want to choose the exit strategy that suits your circumstances, supports your future opportunities and delivers the results you want.
Here are six common exit strategies to consider as you determine what works best for you and your business.
Strategy #1: Pass it to a family member
Many family-owned businesses have someone from the next generation preparing to take over.
This can be an obvious choice if that person already works there, knows your role, understands how the business works, is familiar with the staff and can continue to grow the business.
But family businesses can be complicated if more than one sibling or relative wants to be in control and has radically different ideas than yours.
To make it easier to sell to family:
- Communicate your intentions early.
- Decide who’s best qualified to lead.
- Get a consensus of agreement on who will inherit.
- Access an outside expert valuation.
- Solve conflicts of interest.
- Use a professional like an accountant or adviser to help facilitate.
Ultimately, think about what’s best for the business. If a family member has the right skills and experience, it can be a smooth transition.
Strategy #2: Sell to a business partner
If there’s more than one business owner, they might be interested in buying the business.
Similar to selling to family (they might feel a lot like family!), take care if there’s more than one shareholder who wants control.
Get an external valuation to avoid any disagreements on price.
You can consider allowing the new owner to buy the business in stages if they can’t afford to pay in one lump sum. But you’ll want to avoid any issues getting those payments if the company doesn’t perform as well once you’re gone.
Strategy #3: Sell to your employees
An existing employee (or employees) might see their next career step as buying the business.
Employees can make good buyers because they already know and understand the business, hold relationships with your suppliers and customers, and are likely to want to continue running the business the same way (at least for a time).
If an employee doesn’t have enough capital to swing the deal on their own, you might consider helping them fund the purchase. But similar to selling to a business partner, it’s usually better to ask them to find their capital so you can make a clean break.
Strategy #4: Sell to an outside buyer
Finding another person or company to buy your business outright is often the best exit. You can negotiate for the highest price and leave the business without feeling any personal obligations to the new owner.
To make this easier:
- Get professional help valuing your business so it’s a fair price to both parties.
- Use an intermediary, like a business broker or adviser, to help negotiate with the buyer.
- Look at what similar businesses are selling for.
- Prepare your business for sale by tidying, fixing and updating it.
- Outline your business plan for the future.
Strategy #5: Shut down the business
Some businesses close because it’s difficult to transfer any value or find a buyer.
A good example is if the owner is the only employee (in a service industry like an architect) where the owner is the business, and it’s hard to justify goodwill.
Alternatively, the business might be under stress and needs to close to prevent reckless trading. Maybe expenses outweigh sales, and there’s no remedy in sight.
If this is the case, you should liquidate all your assets for cash and pay off any debts, taxes or financial obligations before closing. Seek professional help if it’s likely you need to close.
Strategy #6: Keep the business and install a manager
You might decide to keep the business and employ a manager to run the day-to-day operations. It might be an existing employee or someone new.
This is a popular option if the business is generating positive cash flow, and you can draw dividends that provide a better return than investing the sale proceeds.
Recognize the right time to sell
When to sell can depend on what’s happening in your industry and your internal retirement clock.
These indicators can help you know when to sell:
- You’re confident about the return on investment for another buyer.
- The business has gone as far as you can take it.
- The next generation is ready to take over.
- You’re ready for another challenge.
- There’s growth potential.
Good timing depends mainly on what the market’s doing at any given time. And ideally, you’re not in a rush.
Selling your business is probably the most important decision you’ve made since you started.
So, take the time to think about what’s best for you and your business. The more time you have before the sale date, the better the outcome is likely to be.
Seek as much advice as you can from your accountant, business adviser, lender, industry connections and other small businesses you trust to help guide you through the process.