Have you ever heard of a business exit strategy? This is a strategic plan to walk away from or sell a business. You can sell your business with quality assets for a profit or continue working there as a manager. Usually, business owners will plan their exit approximately five years ahead. This provides enough time to maximize the value of the business so it will be more appealing to investors.
Before engaging in business selling, it is a good idea to have a lawyer review any legal documents that are involved in the sale and to speak with a broker about the current market conditions. Once you have done this, you can feel confident in your business exit strategy. Keep reading to learn more about how to develop an exit strategy that is going to put you in the most advantageous position.
How Business Exit Strategy Works
It is a good idea to begin your business exit strategy during the early planning stages of your business. In some cases, you may even include your ideal exit strategy in your initial business plan. There are several options to choose from when it comes to exiting your business and knowing how you want to exit will guide your business decisions regarding product development and management.
Now it is time to get into the different versions of exit strategies you can use. Keep reading to learn what these are.
Selling to an Unknown Entity
One of the most common ways to exit a business is by selling it on the open market. This is when you choose to sell your business to someone who is unknown. The entity can be just one person, several owners, or an entire group of investors. You can even try to sell your business on some of the various websites that are available. One of the biggest benefits offered by selling the business on your own is that you can save money on things like business valuation, broker fees, and marketing.
If you would rather work with a pro, think about hiring a business broker. This professional can help market your business and highlighting it to potential buyers. Business brokers can also help you prepare the business, so it looks appealing to a buyer.
Transfer Your Business to a Member of Your Family
There are some owners who have worked hard to build their business and who want to keep it in their family. Another benefit offered by transferring the business to a member of your family is the limited tax liability you will experience. If you have a business that is worth less than $5.45 million and it has been gifted, there are no taxes that are owed on the sale. However, there is a downside of gifting your business. This means that you won’t receive the proceeds when it sells. In some cases, this won’t meet your financial goals.
Sell to Your Current Employees
Rather than relying on the open market to help you sell your business, you should think about selling to one or several of your current employees. This is sometimes an easier exit strategy because you can begin to groom your workers to run your business over a few years. If you choose to sell your business to someone who is unknown, it may mean you have to spend several stressful mounts teaching this new person how your business operates.
One of the benefits offered by several employees is that they can break up the purchase price. Just one employee may not be able to cover the cost of the business. However, if you spread the cost across several workers, it will make the business more affordable for everyone.
Sell to Another Investor or Owner
If you have a partner that owns the business with you, a good option is to sell the shares you own to them. If you have a buy-sell agreement in place, you have to follow this when you make ownership changes or sell. With this document, the process should also move smoothly. If you don’t have the buy-sell agreement when you start the business, you may wind up paying significant legal fees to help settle a dispute about the sale price.
If you don’t have the option of selling to a co-owner, you can sell your ownership interest to an investor. If your business partner or partners are able to operate the business without you being involved, you can allow a silent investor to buy out your interest. This silent investor, which is also called a silent partner, is not the one who is responsible for making decisions each day.
Have Another Business Acquire Yours
If you have built valuable assets such as trained employees, a loyal client base, or some type of proprietary software, there may be another business that wants to acquire or purchase it. By acquiring the business, another company doesn’t have to worry about trying to hire or train new employees. You should consider pitching the sale of your business to your competition to see if they are interested in buying.
Sell and Take the Role of Employee
If there is another company that buys your business, you can decide to work as an employee. After the sale, you don’t receive any profit payouts. However, the business that is buying may opt to pay you a salary.
As you can see, you have several options when it comes to developing an exit strategy. It is up to you to figure out which one will best meet your needs. Being informed and knowing what options you have is the best way to ensure you choose the business exit strategy that will be right for you and your business.