6 Exiting Business Strategies to Make a Smooth Transition

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Transitioning and exiting business owners have many tough decisions to make. In addition to the often emotional process of actually leaving your company, you must also prioritize creating the smoothest possible transition for partners, employees, your family, and yourself. 

If you’re new to the world of being a business owner, it’s hard to think about the day that you pass over the reins of your business. But, as with most business decisions, creating a long-term strategy is the key to success. Because there are so many viable routes available, considering your ideal outcomes today allows you to plan better, make present decisions that facilitate your transition, and enable other stakeholders to make informed decisions. 

Three Key Considerations of Exiting Business Strategies

Before you settle on an exit strategy to work towards, here are a few things to consider:

  1. You can’t wait until you’re ready to transition to build up your business value. Every day your doors are open, and you are at the helm, you should strive to make your business as attractive as possible. By building value, whether that’s knowledge, organizational culture, competitive advantage, employee talent, or any other asset that makes your business more attractive, you can create more transfer options in the future. Investing in your business’s long-term value from the very beginning opens up innumerably more possibilities that aren’t available to companies who haven’t worked to make themselves more tempting to interested buyers, investors, or stockholders. 
  2. Keep an open mind about your transition. While you might already have an exiting business strategy in mind, that doesn’t mean you have to close off all other options once you’ve made your initial decision. Cast a wide net, do your research, and talk to the people close to your business. In doing so, you ensure that you have a comprehensive picture of your business’s direction after you transition out and give yourself the power to make well-informed decisions that create the ideal outcomes for everyone involved. 
  3. Transitioning out of your business does not necessarily mean that you are no longer involved. For example, if you choose to pass the company on to a family member, you still get the pleasure of sharing in the continued success without the pressure of being a business owner. Selling to a third-party gives you the option of staying on board for an agreed-upon amount of time to help the transition go smoothly. If you opt to pass on management responsibilities without actually selling, you can retire from the business and remain a shareholder. That means that you’ll continue to receive income from the company without being actively involved in its running.

Pass it to Family

If legacy is what you’re after, you might want to consider keeping your business in the family. This could be a child, a sibling, or whichever relative you feel is fit to take the reins. If this is your plan, you should start making those considerations now, as this will give you the time you need to cultivate successors who know the ends and outs years before they actually take over. 

Offer Employee Stock Ownership Plans

When business owners aren’t interested in selling or liquidating their business, offering employee stock ownership plans (ESOP) can be an appealing option. This strategy allows employees to purchase shares of the company at a discounted price. Not only does this “create” a buyer instantly, as opposed to searching for months for an interested third-party, but it also allows you to maintain as much control of the company as you want. You can continue to be a majority owner while creating liquidity to fund your retirement. It also helps valued employees feel more motivated to stay onboard during the transition and beyond. Because they are now part-owners, they have a vested interest in helping the business continue to thrive, even after you’ve turned management over to someone new. 

Sell to a Third-Party

A third-party sale is the most popular exit strategy. You set a price based on business value and profitability, then sell to an interested party for an often negotiated price. This is an attractive option if you have a highly valuable business due to profits, community reputation, potential success, or any combination of factors that would make the investment worth something to the seller. On the other hand, if your business is only marginally profitable, you may have difficulty with this approach. Working to add value to your business before transitioning can put you in a better position to sell for a higher price. 

Facilitate an Existing Manager Buy-Out

A great way to keep your business alive is by selling to an existing manager or employee. Not only do you have the benefit of knowing (and trusting) the person who is going to be taking over, but you also get the chance to train while you’re still actively involved explicitly. Because you already have a relationship, it could be an opportunity for you to be involved (if that’s what you want!) that you wouldn’t necessarily have if you sold to an unknown buyer. 

Sell Stakes to Partners

An internal sale is only a choice you have if there are other proprietors associated with your business. Allow those partners or investors to buy you out of your shares, which allows the company to proceed as usual, in most cases. That means your legacy remains intact. Additionally, you’ll make a tidy profit from someone you trust… Unless the relationship between stakeholders is on shaky ground. If you don’t feel that you and your partners could compromise to a fair solution, you may want to look into other exiting business strategies. 

Liquidate

This option is the most extreme, but for some business owners, liquidation, in which you sell all business assets and cease all operations, is the right answer. Keep in mind that while this option will likely net you a fair amount of cash and keep the exit short, you will have to use some money to pay off any debts. Additionally, it would be best if you considered the effect on your employees, as liquidation would eliminate their jobs. In some cases, if liquidating seems like the only option, it might be better to stay on for a little while longer to create more business value, making it more appealing to a potential buyer. This reopens the possibility for a different exit strategy. 

Not sure what your best option is? It’s a complicated, nuanced decision to make. Luckily, Catalyst Group ECR has the experience and expertise to help you make the smartest move for yourself and your company’s legacy. Let’s have a chat! As you get closer to exiting your business, you’ll be glad you did!

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