8 Exit Strategies for Business Owners

By:  Paul Horn, CFP®, CPWA®, Senior Financial Planner

Small business owners are the backbone of our economy and employ 48% of today’s workforce. Being a business owner is difficult and finding the right help can be even more challenging. Every business owner at some point will need to carefully consider how they plan to exit the business. Below are the eight most common ways for an owner to exit and a brief description of the pros and cons.

1. Transfer the company to a family member(s) – This seems like the easiest choice for many owners but there are several considerations like potential family issues and the children(s) ability to run the company. The business may also not provide sufficient cash payouts to you in your retirement.

2, Transfer to a key employee(s) – Provides incentives for key employees and provides business continuity. Potential challenges include: (1) Can the employees afford a buyout? and; (2) Do they have the ability to run the company?

3. Transfer via Employee Stock Option Plan (ESOP) – This can be a great alternative since it may provide the proper cash flow for you. The downside is complexity, costs, and it may not be the right solution for some.

4. Sale to co-owner(s) – This is one of the most elegant exit strategies and can easily be done.

5. Sale to a third party – This may provide you with the most money, but it may increase the chance your company loses the identity and culture you worked so hard to create.

6. Initial Public Offering (IPO) – This is a great strategy for some, but the company should be worth at least $300 million to consider this strategy. This strategy can increase the cash in your pocket but keep in mind it doesn’t completely exit you from the business.

7. Passive Ownership – This strategy can be used on its own or in conjunction with another strategy like selling to family or key employees. This allows you to retain control longer, but reduces immediate cash payouts.

8. Liquidation – For some, this is the only alternative if the company’s success is based on one individual or if you need to leave the company immediately.

We understand that the idea of leaving your business is a very difficult decision to make. We have helped several business owners over the years with succession planning and have many resources to make the decision easier. Please do not hesitate to reach out to us at financialplanning@bfsg.com to discuss your current situation with us today!

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