Business Exit Strategies: How to Choose the Best Option for You

Building and growing your business didn’t happen overnight. It took years of hard work, dedication, and many sacrifices along the way. The same goes for creating a solid transition and exit plan—it’s not something you can create in a day.  Yet, here’s the surprising part: A survey found that while 67% of business owners expect to fully exit their company in the next ten years, only 50% have a clear exit plan and knowledge of the market value of the business. ¹ The absence of a clear succession plan could jeopardize the stability and future of your business.

If you’re thinking about selling your business within the next five years, it’s time to start planning. To help you get started, let’s walk through a few key questions to consider first, along with the more common strategies for transferring ownership.

Preparing for the Sale
A great first step is assessing what drives the value of your business. What are its biggest strengths? Where might there be room for improvement? Think about how selling your business fits into your long-term financial goals—like ensuring your retirement is secure.

Beyond the sale price, there are other factors that might matter to you. For instance, do you care about maintaining the business’ culture and reputation after you step away? If so, you might prioritize finding a buyer you trust to carry on your vision and your philosophies align.

When it comes to selling or transferring your business, there’s no one-size-fits-all approach. However, businesses are usually transferred in one of the following ways:

1. Selling to a Third Party
2. Transferring to Family
3. Management Buyout
4. Employee Stock Ownership Plans
5. Liquidation

Let’s take a closer look at each option.

Selling to a Third Party
Selling to a Third Party is one of the most effective ways to exit a business, especially if your goal is to maximize the sale price. It lets you control price negotiations and set terms, usually through a deal with a strategic buyer, financial buyer, or private equity group. This option often means more cash up front and a faster, cleaner break, while bringing fresh energy and growth opportunities to your business.

However, it’s not without challenges. The process can be long, costly, and emotionally taxing, involving professionals like CPAs, CFO, business advisor, investment banker, and attorneys. You’ll need to navigate privacy concerns and be ready to let go of control, which can impact employees and customers. Even with careful planning, negotiations can drag on or fall through. Still, for those looking for the biggest payout, this strategy delivers.

Transferring to Family
An intergenerational transfer allows you to keep a profitable business within the family, preserving its legacy and passing it on to the next generation. This option is often appealing to business owners who value maintaining their company’s history, culture, and mission. However, it requires careful consideration and planning, as it is often an emotional decision rather than a purely rational one. This type of business transfer comes with some unique challenges such as navigating family dynamics, ensuring the next generation is prepared to take the reins, and dealing with potential liquidity issues if buyers lack sufficient funds.

On the positive side, an intergenerational transfer can preserve the company’s identity while providing continuity for employees and clients. It often costs less, allows for more control over the transition, and is typically driven by higher levels of motivation from both the seller and the buyer. That said, it may come with drawbacks like a lower sale price, the risk of losing key employees, or complications with dividing the estate. A successful transfer depends not just on the financial and operational readiness of the business, but also on the family’s ability to handle the ownership transition.

Management Buyout
In a management buyout, you can sell or transition part—or all—of your business to the management team that knows it best. This approach leverages the company’s own assets to help finance the purchase, making it an interesting option if you believe your seasoned senior team members are up to the task. It ensures continuity, preserves key employees who are deeply invested in the business’s success, and keeps operations running smoothly.

On the flip side, management buyouts aren’t without their hurdles. They often come with lower sale prices and less appealing deal terms, as well as a reliance on seller financing that could tie you to the business for longer than expected. Additionally, management teams—while great leaders—aren’t always natural entrepreneurs. There’s also the chance of strained relationships if things go south.

 Employee Stock Ownership Plans
An Employee Stock Ownership Plan (ESOP) lets you sell your business to its employees, keeping it “in the family.” The company typically borrows funds to buy shares from the owner and places them in a trust for employees. ESOPs come with great tax benefits—like deterring taxable gains and can motivate employees to think and act like owners.

That said, they can be complex and costly to set up. The company may also need to repurchase shares from departing employees, which can be a financial burden. ESOPs are often best for owners looking for a gradual exit and businesses with a strong culture and engaged workforce.

Liquidation
Orderly liquidation is sometimes seen as a last resort when stepping away from a business, but it can be a relatively quick way to wrap things up. It involves closing operations and selling off any remaining assets, making it a smart choice if your assets are worth more than the income the business can generate. The cash from the sale is then used to settle any outstanding debts, giving you a fresh financial start.

That said, it’s not without its challenges. The proceeds can be unpredictable, and you won’t benefit from goodwill value. It can also be an emotional process, as it affects employees and their jobs, and some may view it as a difficult choice. However, with thoughtful planning and the right guidance, it can be a practical and efficient solution when the time is right.

Most business owners are unsure of their business exit options or even when or if they might want to sell. It’s important to remember this: whether by design or by default, every business owner will eventually face that moment. The great news is that there are numerous exit strategies available, each with its own unique benefits and considerations, which are detailed in this article.

With the guidance of your professional advisory team, like your trusted B2B CFO Partner, you’ll have expert support in exploring all the options. Together, you’ll identify the strategy that aligns best with your goals, circumstances, financial priorities, or even unforeseen challenges like a health challenge.

At B2B CFO ^®, we specialize in educating, preparing, and guiding business owners through this critical process. With our proprietary tools, software, books, and proven processes, we provide a clear blueprint to help you confidently transition and sell your business when the time comes. We’re here to make the process smooth and successful.

Sources.

1. The Exit Strategy Handbook, Fourth Edition, Jerry L. Mills, B2B CFO ^®, LLC