What is a business exit strategy?
A business exit strategy is an owner’s plan for how you will transfer ownership of your business.
It’s a roadmap outlining the steps to be taken to transition out of your business while maximizing value (for you) and minimizing disruption (for employees and customers.)
Exit strategies are typically developed well in advance of your actual exit and may involve several transitions and transactions at different times.
Deciding to leave your business is both a business and deeply personal decision.
Planning a ‘good’ exit looks different for everyone which is why the process actually starts with you deciding what you want from your business.
Do you expect your business to carry on after you’re gone?
Do you envision leaving the day-to-day operations before you consider selling at some point?
Are you counting on selling to fund your retirement?
Do your children or other family members expect to take over the business? Do you want them to?
If someone was to buy your business, who might that be?
What do you want to do when you’re done running your business?
Another important step in planning a business exit is to know your options. This may include
Sale to a Third Party: Selling the business to an outside strategic buyer, financial buyer, or private equity group. This could involve an unsolicited offer, negotiated sale or an auction process.
Merger or Acquisition: Merging the business with another company or being acquired by a larger entity. This can offer synergistic benefits and economies of scale.
Selling to Existing Partners: Usually buy-sell agreements outline the terms for buying out a partner.
Management Buyout (MBO): Selling all or part of the ownership to its current management team. This typically involves the management team using business assets to finance part of the project. It can be a way to ensure continuity and preserve the company's legacy.
Employee Stock Ownership Plan (ESOP): The company uses borrowed funds to acquire shares from the owner and contributes the shares to a trust on behalf of employees. This can incentivize and reward employees while facilitating the owner's exit.
Passing on to Family Members: Selling or gifting ownership and management control to the next generation within the family. This can be a way to preserve family values and traditions while ensuring continuity. It typically results in less or no capital for the seller.
Initial Public Offering (IPO): Taking the company public by offering shares to the public for the first time. This can provide liquidity for existing shareholders and raise capital for future growth. Technically an exit option but one that few business owners will use.
Orderly Liquidation: Closing down the business and selling off its assets. This may be necessary if the business is no longer viable or if the owner(s) wish to exit quickly.
It’s important to remember that you don’t always have to sell all your ownership in one transaction. By selling part of the business at a time you can often recapitalize to fund growth, retain a portion of ownership, continue to be involved in running the business, and get a ‘second bite at the apple’ which can create more wealth than a single exit.
Increasing your understanding of exit planning as a process, not an event, makes it easy to see how it makes sense to integrate it into your current strategic growth plan.
Purpose First Advisors specializes in helping business owners level-up their approach to business growth and profitability. Let us help you build, grow and exit your business on purpose, with purpose.
