When you start a business, an exit strategy is usually the last thing on your mind. Many entrepreneurs envision their lives growing a thriving business that lets them achieve their dreams of self-employment.
But what about heading into the retirement years? Or if your life situation changes?
Creating a well thought out exit strategy can help you transition to the next phase of your life while honoring the work you put into your business. Here are some of the best exit strategies when looking to sell your business.
External Sale
The main exit strategy to consider when selling your business is an external sale. With this approach, you’ll be positioning your business to appeal to a buyer. To accomplish this task, it’s best to work with business brokers who know your industry and region. A skilled business broker will be able to generate interesting leads and make suggestions on how to make your business more appealing to a potential buyer.
Selling the business to an external buyer can be a lengthy process. It’s something you want to consider a few years before you plan on retiring or moving on. Your approach will also depend on the nature of your business.
An external sale could consist of an Initial Public Offering (IPO) in which your company goes public, and shares are sold off. It could be a sale to another business in the form of an acquisition. Talk to your business broker to determine the best approach for your goals.
Internal Sale
With a private sale, you’re selling the business to someone on the inside, such as an employee. This is a fantastic option for established companies with long-time managers or leaders who are dedicated to seeing the business thrive.
The benefit of an internal sale is that you can make a plan without worrying about finding a buyer, which often makes up the duration of the selling process. Another benefit is that the employee knows how the business works, and knowing that it will someday belong to them increases their engagement and productivity.
The challenge with an internal sale is that a great employee might not be a great business owner. There’s also the potential for awkwardness and blurred boundaries during the transition. Your employees will also be more in tune with the flaws of the business, which can be a strong negotiating point on their behalf.
Family Succession
Keeping the business in the family is a common dream for business owners. Family succession has the benefit of giving you time to shape your successor and prepare them for the leadership role. It’s also a great way to stay involved in the business without taking the reigns.
Family succession can also include a financial transaction if that’s what you decide upon. However, taking this approach can create the potential for unrest and argue within the family about ownership, finances, etc. It’s also possible that your family won’t share the same passion for your business, refusing to take over or taking it in an entirely different direction once they’re in charge.
Liquidation
If selling the business itself is not an option— for example, if time is of the essence— it’s time to consider liquidation. When you liquidate your business, you close up shop, sell off the assets, and call it a day. A quick liquidation yields the least results for the business owner and gives owed vendors and creditors the first crack at any profits made from liquidating assets.
You can also liquidate your business over time, but this can be tricky with vendor relationships.
Tips for Choosing an Exit Strategy
For an exit strategy to yield the results you want, there are a few key considerations to keep in mind. First and foremost, early planning is key. It can take years to successfully close or transfer your business in a way that maximizes your returns or mitigates your losses.
Another consideration is your reasoning. Potential buyers want to know that you’re not abandoning a sinking ship. You’ll need to craft a narrative that tells potential investors why you’re no longer interested in the company without raising any red flags. For example, “I’ve brought this business to a point of success that I’m proud of, but I know that new leadership can take it even further.”
Documentation and support are also essential for a successful exit, whether you’re handing the business down to a family member or over to a new owner. Document processes and ensure there’s adequate follow-up support for whoever takes over.
The Best Exit Strategy for Selling Your Business
There’s no black and white answer about which exit strategy is best when selling your business. Everything will depend on the situation, how much time you want to take, outstanding debts, the value of your business and assets, and what you’re willing to accept.
Give yourself time to consider which approach works best for you, and don’t hesitate to hire a consultant to help.
