While owning and running a business can be incredibly rewarding, there comes a point when it is time to move on. For many business owners, a significant portion of the financial benefit they derive from the business will come at the exit. A profitable exit is never guaranteed, however. To truly succeed in your exit, you must plan ahead and choose the business exit strategy that best aligns with your goals. 

In this article, we first discuss why having a business exit strategy is important before moving on to highlight some of the most common exit strategies available to you. These include:

• Outright sale
• Partial sale
• Employee buyout
• Succession
• IPO (initial public offering)
• Bankruptcy or liquidation

Related Article: Selling and Business Taxes: What to Consider When Planning Your Exit

Why Having a Business Exit Strategy Is Important

If you are like most business owners, your company likely represents your most valuable asset. Given its value, how you approach your exit can have a long-term impact on your personal and professional life moving forward.

Exiting a business without planning ahead often leads to less-than-optimal outcomes. While an exit strategy can’t always make up for a poor or failing business, it can have a significant impact on the overall success of your exit. Specifically, a cohesive exit strategy can help you achieve:

• A more profitable exit
• Better deal terms
• An easier exit experience
• A clearer plan for the future

“Exiting a business without planning ahead often leads to less-than-optimal outcomes.”

More profitable exit

Since the majority of the financial value you receive from your business comes when you sell it, it pays to maximize your final payout. When it comes to business valuations, small differences in performance can translate into a huge difference in the final sale price. 

By preparing ahead of time and choosing the right exit strategy, you can work to maximize your business’s value in order to achieve a more profitable exit. Depending on the scale of your business, this could translate into tens, hundreds, or millions of additional dollars compared to having no exit strategy in place. While putting an exit strategy in place can take time and energy, the payoff can more than make up for the effort in the form of a more profitable exit. 

“By preparing ahead of time and choosing the right exit strategy, you can work to maximize your business’s value in order to achieve a more profitable exit.”

Better deal terms

When thinking about the success of an exit, it can be easy to judge solely based on the final sale price. And while the final sale price is hugely important, it is not the only factor to think about. Indeed, much of your post-exit experience is determined by the specific deal terms you agree to with whoever takes over when you leave. 

For example, let’s say you plan to sell your business to an individual buyer. In a perfect world, you would choose to have a clean break from the business with the full amount paid in cash at the time of closing. However, buyers may offer a different structure, such as a partial payout at closing with the remainder paid back over the course of several years. Future payouts may even be contingent on the future performance of the business. 

In this scenario, the number and quality of offers you receive will directly shape your ability to negotiate the terms you want. With more offers comes more negotiating powers, increasing your chances of achieving your goals. 

Any effective exit strategy properly conceived and carried out will serve to make your business more attractive to potential buyers. This helps you to attract more offers and allows you more power to negotiate deal terms that meet your needs. 

Easier exit experience

Most exits can be challenging and nerve-wracking experiences. With so much riding on them and so many detailed steps to complete, many entrepreneurs find them to be quite difficult. As with achieving better deal terms, your exit experience can be made significantly easier if you have a clear exit strategy in place before starting the exit process. 

For starters, having an exit plan keeps you organized, on track, and moving forward cohesively. Without a plan, it can be easy to become sidetracked or overwhelmed throughout the process. 

In addition, the more interest and offers you receive, the less potential buyers will try to hassle you during the exit. If they do, they know you have more interested parties lined up and ready to step in if their offer falls through. This puts you in the driver’s seat and gives you some breathing room as you navigate the exit. 

“Having an exit plan keeps you organized, on track, and moving forward cohesively.”

A clearer plan for the future

Lastly, having a cohesive exit strategy allows you to plan ahead for the future. Life will look a lot different if you sell your business outright than if you opt for a partial sale, for example. By setting your goals and creating an exit strategy to achieve them, you can start laying down post-exit plans in more detail. 

Types of Business Exit Strategies

There are many different possible ways to end your involvement with your business. The right option for you will depend on your specific situation and goals. Below, we review some of the common exit strategies that may be available to you. 

Outright Sale

One of the most common exit strategies for small online business owners is to sell the business outright. You can sell it to another company, an investment firm, an individual, or any other entity. For many business owners, this can lead to a highly profitable exit and a successful post-exit life. 

Pros

There are many pros to selling your business outright. Depending on the structure of the sale, you have the opportunity to completely remove yourself from operations, releasing your involvement and freeing up your time for other ventures. 

If you own a strong business and attract multiple bids, selling outright can be a highly profitable exit strategy. Depending on the terms, you could walk away with a life-changing chunk of change. Indeed, many sellers retire comfortably after they sell their business. 

Given the open-ended nature of the potential buying pool, you have a lot of say in whom you choose to sell to and what terms you elect to go for. 

“If you own a strong business and attract multiple bids, selling outright can be a highly profitable exit strategy.”

Cons

As mentioned before, however, some outright sales are structured in a way that requires you to stay on in some operational capacity, either indefinitely or for a specified period of time. Furthermore, if your business is failing, you may not attract any worthwhile offers, forcing you to lower your price or accept unfavorable terms. 

Selling your business outright requires navigating multiple complex steps. It is a significant undertaking, one that requires time, effort, and expertise. Many entrepreneurs who go it alone can become overwhelmed quickly by the task. Those who do make it through can often make missteps that decrease their success. 

For this reason, many business owners choose to work with a business broker, or business Advisor, to help them navigate the entire process. While business brokers do charge a fee, they often more than make up for it in the form of a higher sale price, easier selling experience, and better deal terms. 

Partial Sale

Some business owners want to stay involved in business operations or maintain a financial stake in the company while freeing up cash in the immediate term. For these individuals, a partial sale of the company may be a worthwhile consideration. 

As its name implies, in a partial sale you sell part of your stake in the business. For example, if you own the company outright, you may elect to sell 60 percent of the company to another entity while retaining 40 percent for yourself. 

Pros

A partial sale allows you to reap the rewards of your hard work in the present moment while giving you a piece of any potential future payout. In the example above, if the business continues to grow, your 40 percent stake could be worth quite a bit more in the future. 

Depending on the arrangement, a partial sale could give you the ability to stay on in an operational role. This would only be a pro if you enjoy running the business or otherwise find it fulfilling. 

Cons

Staying on to run the business could be considered a con if you prefer to completely remove yourself from operations. Secondly, your stake in the business could decline in value if the business performance suffers moving forward. 

If the terms of the sale remove you from operations, you have little to no say in the future success or failure of the company. It can be hard to watch from the sidelines as your business and ownership stake go up in smoke under incompetent leadership. 

“A partial sale allows you to reap the rewards of your hard work in the present moment while giving you a piece of any potential future payout.”

Employee Buyout

If your business has involved and dedicated employees, you may want to consider an employee buyout. In this scenario, one or more employees buy the business from you and continue to operate it under their ownership. 

Pros

One of the main benefits of employee buyout scenarios is that you already know and (hopefully) trust the buyer. This can help in negotiating a fair price and completing the exit process. 

In addition, the buyer likely already has an intimate knowledge of the business and its operations. This allows them to step in more seamlessly, assuring you that your business will be in good hands after you leave. 

Cons

An employee buyout may not be possible for you if you have no employees or have employees but none is interested in buying the business. In addition, if the deal gets sticky, it can sour your relationship with someone who might be a friend. Lastly, given the lack of competition, you may have less say in deal terms than you might if you opened it up to a competitive bidding environment. 

Family Succession

Depending on your situation, you may consider passing your business off to a family member, such as a spouse or child. Of course, you must have a capable and willing family member present for this option to be a possible consideration. 

Pros

If you plan ahead, passing your business to a family member allows you to train them ahead of time, helping them succeed when it comes time to take over the business. It also allows you to maintain a close view of the business, giving you the opportunity to continue to see the fruits of your labor unfold. If you wish to, you may even be able to stay on in the business in some capacity. 

Cons

Sometimes, mixing business with family can lead to strained relationships. Feelings can get hurt, trust can be broken, and divisions can occur. Of course, you are not doomed to fall into this trap, but it is good to be aware of the stakes if you are considering this option. 

IPO

If your business is large enough, you can sell shares to the public in an IPO, or initial public offering. 

Pros

IPOs have the potential to be very profitable for the right business. 

Cons

IPOs can be challenging to navigate from a regulatory and process standpoint. If you go this route, expect higher levels of scrutiny, more hoops to jump through, and additional administrative headaches. 

Bankruptcy or Liquidation

Bankruptcy or liquidation aren’t the first things that come to mind when thinking of an exit strategy. Most business owners don’t want to be considering these options under normal circumstances. However, if things take a turn for the worse and your business is headed down the tubes, bankruptcy or liquidation may become your only viable path forward. 

Pros

Liquidation requires you to sell all of your business’s assets in order to pay off debts and square your accounts. It avoids bankruptcy but still results in the complete failure of your business. Liquidation does result in a clean break for your business, which some may view as a positive. It can also be an easier process than a sale, IPO, or other exit strategies. 

Bankruptcy absolves you of your debts from the business and provides a somewhat clean slate to start over from. 

Cons

If you choose liquidation, don’t expect to emerge with a profit. 

With bankruptcy, you can expect your assets to be seized to pay off debts as well as a substantial hit to your credit. There is also the potential stress and embarrassment involved with going belly up and declaring bankruptcy. 

“By getting clear on your goals and choosing the strategy that best fits your needs, you can set yourself up for a truly successful exit.”

Conclusion

If you are ready for a change and looking to move on from your business, take some time to consider the right exit strategy for you. The option you choose will influence many aspects of your post-exit life, from your finances to your free time. By getting clear on your goals and choosing the strategy that best fits your needs, you can set yourself up for a truly successful exit.