As the owner of a sole proprietor online business, you’ve probably spent some time considering the best way to exit the company. Even if you don’t plan on leaving the business any time soon, having an idea of the best exit strategy available to you can help you plan ahead to secure a profitable sale on your preferred terms. 

In this article, we discuss:

• What is a business exit strategy?
• Four business exit strategies available to sole proprietors
• The benefits of having a business exit strategy
• Four key steps your business exit strategy should include

Related Article: How to Navigate Life After Successfully Selling Your Business Online

What Is a Business Exit Strategy?

Depending on your circumstances, your business may be your most valuable asset. In addition, much of the financial benefit you receive from your business will come when you sell it. Given this, it is crucial to capitalize on your exit as much as possible. 

A successful exit is never guaranteed. They also rarely happen by accident. Behind every profitable business exit, there is usually a carefully thought-out and executed business exit strategy. 

You can think of your exit strategy as your plan for leaving your business. It is a detailed road map that will get you from where you are now to where you want to be when it comes time for you to move on from the business. 

You may assume that an exit strategy only comes into play when you are leaving the business. That assumption is incorrect. As we will see, the best time to start planning your exit is when you start the business. The second-best time is right now, even if you aren’t thinking of exiting immediately. 

“Behind every profitable business exit, there is usually a carefully thought-out and executed business exit strategy.”

4 Business Exit Strategies Available to Sole Proprietors

There are many ways you can exit your online sole proprietor business. Several common options are:

• Outright sale
• Transfer to family or friends
• Employee buyout
• Liquidation or bankruptcy

Below, we’ll explore each of these to help you understand which option might be the easiest for you. 

Outright sale

When you think of an exit, the first idea that probably comes to mind is selling your business outright. This is perhaps the most common and (sometimes) the most straightforward option. With an outright sale, you sell your business to another individual, business, or entity (like an investment firm). 

Not all outright sales are designed the same way, however. The terms of the deal will have a large impact on what your post-exit life looks like. For example, many deals are structured in such a way that you receive the full payment amount up front, with a clean and full break from the business after the sale is complete (including a transitional training period). 

However, some outright sales are structured so that you, the seller, retain a stake in the business, with the balance being paid back to you over time—and sometimes contingent on the performance of the business. While this can lead to extra profits if the business grows into the future, it does mean that you remain tied to the business in some form until the full balance is paid. 

“The terms of the deal will have a large impact on what your post-exit life looks like.”

Furthermore, some deals are structured such that the seller stays on and runs the business for an agreed-upon time frame after the sale is complete. 

If you decide to pursue an outright sale, the deal terms you receive will depend on your goals, negotiating ability, and the amount of buyer interest you receive. Is an outright sale easy? They can be relatively easy if you have a strong business and negotiating position. However, they can also get bogged down or fail altogether if your business fails to attract buyer interest. 

Transfer to friends or family

Another option available to you is to transfer the business to a family member or friend. Depending on your goals and circumstances, this could be done as a sale or a pure transfer without compensation. The second instance is generally more applicable to intergenerational business transfers in families. 

Transferring your business to a family member or friend has potential benefits as well as drawbacks. How easy it is depends in large part on the nature of your relationships with the friend or family member to whom you plan to transfer the business. 

If the relationship is strong and they do a good job of managing the business after the transfer, this can be a great (and easy) option. With trust and good intentions already established, it can take a lot of pressure off of coming to an agreement. 

That being said, mixing business with friends or family can sometimes backfire. There have been many a close relationship that turned sour after disagreements over business. Different management styles, communication issues, or someone outright dropping the ball can lead to issues down the road. 

If you decide to go this route, be aware of the possibility that it could strain or break relationships that are important to you. 

Employee buyout

In an employee buyout, one or more of the business’s employees purchases the business from you. As with an outright sale, there are many ways to structure an employee buyout, from a full and immediate buyout to partial buyouts and gradual transfer of ownership. 

“In an employee buyout, one or more of the business’s employees purchases the business from you.”

There are several advantages to an employee buyout. For starters, the employee or employees who purchase the business likely already have a strong grasp on how to run the organization. This can help to smooth the transition process and increase the business’s likelihood of success in the long run. 

Depending on the other options available to you, employees may not offer as much as you would receive from soliciting multiple offers. Of course, you could always accept multiple offers while entertaining an offer from an employee. 

As with transferring ownership to a friend or family member, making a deal with your employees can be easier than negotiating with a new party due to the rapport and trust you have (hopefully) established with your employees. 

Bankruptcy or liquidation

Bankruptcy and liquidation are usually not top of mind when thinking of a successful exit strategy. However, some owners may not have much of a choice in the matter. 

With liquidation, you sell all of your business’s assets to pay off any remaining business debt. Declaring bankruptcy, on the other hand, absolves you of your debts and allows you to start over from zero. However, your credit score will be negatively impacted. 

Are bankruptcy and liquidation easy? Not really, especially when you consider how hard it can be to start over after bankruptcy. As such, these two courses of action should only be considered when all other alternative exit strategies are not feasible. 

The Benefits of Having a Business Exit Strategy

Having a business exit strategy can provide several benefits, including:

• Increased profits
• Greater efficiency
• Higher sale price
• Better deal terms
• Easier exit experience

Increased profits

A business exit strategy does more than help you achieve a successful exit. It can also help you run a more profitable business while you still own the company. All exit strategies serve to optimize your business in order to prepare it for the market. 

While you still own the business, these optimizations can often translate to higher profits, something any owner would be happy to hear. 

“All exit strategies serve to optimize your business in order to prepare it for the market.”

Greater efficiency

The optimizations you make to your business to prepare it for the market also often serve to drive greater efficiency in your business while you still own it. Whether it is cleaning up your books, improving other business documentation, or building standard operating procedures, the changes you make can lighten your workload and allow you to focus on big-picture issues. 

Higher sale price

Greater efficiency and more profitability ultimately increase your chances of achieving a higher selling price when you do decide it is time to exit. Of course, this is only true if you are selling the business, as opposed to passing it on to a family member. 

Better deal terms

A higher sale price isn’t the only metric used to determine the success of a sale. As we discussed, the final deal terms you agree to will have a huge impact on your post-exit experience. 

By building a more profitable and efficient business, you increase your chances of attracting multiple interested buyers. This, in turn, gives you more negotiating power, allowing you to work toward deal terms that are favorable to you. 

“By creating an exit strategy, optimizing your operations, and attracting more interested buyers, you increase your chances of having an easier overall exit experience.”

Easier exit experience

Exiting a business can be a challenging and stressful experience. This is especially true if you have a subpar business that fails to attract much interest. By creating an exit strategy, optimizing your operations, and attracting more interested buyers, you increase your chances of having an easier overall exit experience. 

4 Key Steps Your Business Exit Strategy Should Include

So, what exactly is involved in a business exit strategy? While the exact answer depends on your unique goals and business, there are a few elements that most or all exit strategies should include.

Find a qualified business Advisor

If you are selling your business, whether in an open sale or to employees, it is wise to enlist the help of a qualified business Advisor (also called a business broker). An experienced Advisor helps you with every step of the exit journey, from creating an exit strategy and conducting a valuation to negotiating deal terms and closing the sale. 

Given the complexity and importance of the exit process, most business owners find it invaluable to work with an Advisor throughout the journey. 

“It is advisable to leave yourself 12–24 months to prepare your business for sale.”

Leave yourself ample time

This is not really a “step,” but it is worth mentioning: Leave yourself ample time to prepare your business for sale. Any changes you make to optimize your business can take time to yield results. For this reason, it is advisable to leave yourself 12–24 months to prepare your business for sale. 

Get a valuation

Your Advisor will provide you with a valuation of your business. In addition to estimating the value of your business, and thus your suggested listing price, a thorough valuation will also help you understand the strengths and weaknesses of your company. This, in turn, will help you create a cohesive optimization plan that serves the needs of your specific business. 

Optimize your operations

Once you have an optimization plan, the next step is to go through your operations and execute the plan faithfully. This could include cleaning up your financial statements and other documentation, improving your marketing plan, driving growth, increasing the transferability of your business, minimizing risk, and more. 

Remember, this part of the plan can take some time, depending on the current state of your business. 

Conclusion

The easiest exit strategy for you as the owner of an online sole proprietorship business will depend on the state of your business and your unique goals. For some, it may be an outright sale with a clean break. For others, it may be easier to move forward with an employee buyout sale. 

Whatever your situation, having a cohesive strategy is critical for increasing your sale price, winning favorable deal terms, and achieving a truly successful exit.