5 Ways You Can Exit Your Small Business

So you've made the decision to leave your business, but what's the best exit strategy? Read this guide and assess the options open to you

5 Ways You Can Exit Your Small Business

For many entrepreneurs and business owners, deciding to exit your business is one of the most critical decisions you could make in your professional career. After tirelessly dedicating years to ensuring the growth of your company, winning new clients and hiring new staff, you’ve finally decided now is the time for you to leave your legacy in someone else’s hands. Once you have made this significant decision, you then need to think of the best exit strategy for your circumstances.

Whether this be handing the business over to a family member or a straightforward sale to a third party, navigating the labyrinth of exit strategies is a decision that requires careful consideration.

So what are the key options?

Handing over to a family member

Transferring ownership of your company to a relative allows you to exit the business but still keep it within the family. Handing your business over to a family member cannot guarantee to leave you with enough capital to leave and live comfortably, but it does mean the transfer can be conducted at any time.

Before passing over your responsibilities, determine whether or not your chosen family member is the right person to take over the business. They should share, or have similar, core competencies to your own.

In order to be sensitive towards other family members and avoid potential conflict, a prepared plan should be developed informing them of ownership structure and whom has what decision making authority. There should be a clean structure of how you want the handover to be fulfilled, outlined with the expectations that you require of each individual in regards to their new role within the company and how best to go about it. Careful consideration would need to be made for the company’s best interests to decide whether a sale or handover would be the most beneficial option for the company.

Selling to a colleague

If you desire an exit strategy that will preserve what’s important to you and your company, then perhaps selling to a colleague may be the best strategy for you. In this type of friendly exit strategy, the seller can finance part of the sale and the buyer pays it off over a certain period of time, earning their way into the business. Management Buy Outs (MBO’s) are quite common as they are a great way to ensure continuity in the business once you have left.

This is a flexible strategy that will allow you to decide the speed of the sale and your involvement with the company afterwards. There are different ways in which you can support your chosen buyer, assisted sourcing of other financing such as private equity or bank debt is a common way to offer such support. Once the buyer has been decided, a plan will need to be developed in order to help define the future roles of your remaining employees, and more specifically who will be taking over your previous role. This low-money-deal still makes the owner more money than by closing but may be a slower exit strategy than other options.

Selling to a third party

Whether it be to another business or a private equity firm, if your main objective is to obtain a large amount of capital from your exit strategy, then selling your business to a third party could be for you. Selling on to another business is the most likely option to ensure a larger purchasing price.

It should be mentioned that selling to a third party may not necessarily guarantee that your company’s objectives and culture will continue on. However, If you want a strategy that will allow your company to expand whilst allowing you to completely leave the business then this is one of the most recommended.

Business partnership/merger

If you’re in no particular hurry to pack up and leave, then partnering with a business who has similar ideals to you and who is willing to manage parts of your business may be the best way to go. To ensure your company will be overseen in the way you desire, make sure your partnership agreement cites what is to happen when either you or your partner decide to completely leave the company.

This will need to include a set of clear goals that will need to be followed through the transition, to ensure everything will be handed over smoothly and without issue. This exit strategy will allow you to slowly ease your way out of your company’s day-to-day operations that you may no longer want to be responsible for.

Reach out to MBIs/search funds

Another exit strategy that may be beneficial to consider is perhaps spreading the word that you’re interested in selling your business directly to somebody else. If this is the case, there are a number of options where you can sell your business to another entrepreneur who is perhaps looking to expand into your market. For this type of exit to work best, you will need to find the right team to take over from you to ensure a continuity of business. This type of sale can involve more of a handover approach when leaving your business, with the goal being to ensure that the business carries on as usual through the merge in order to be successful.

The main positive in this scenario is that it can be a shorter exit time for business owners. It allows you to negotiate a price or offer incentives, such as additional assets like equipment and resources, directly to the potential buyers. Look out for individuals that have a strategic fit with your own and try to make yourself attractive, but not so attractive that you appear to have hit your peak as this could limit the amount of potential buyers to sell to. Therefore, you need to make your company appeal to a larger group of MBI’s in order to increase your chances of a sale.

Jay Dias is founder and managing director of Leela Capital

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