Beginner's Guide: Business Exit Options

My Beginner's Guide Series of blog posts are designed to cover one subject and help you get started on a very basic level.  Sometimes when you are considering a new subject, you just don't know where to begin.  The Beginner's Guide can help.  Please feel free to pay it forward to someone who may need it.

Beginners's Guide:  Business Exit Options

In almost every business owner's life, there comes a time to exit the business.  Most often people think of retirement, but there are other reasons such as health issues, simplifying life, or other opportunities.  

Below are the most common ways people exit their businesses.  There is no best way.  It depends on your particular circumstances.

Internal Buyers are generally employees who are trained to be owners.  There are several categories of internal buyers:  

  Any family that works at the company
  Key employees, where a select person (or persons) become the new owners.
  Employee Ownership Plans.  ESOP's or EOT's. 

Strategic Buyers want your business for a strategic reason.  It adds something to their business.  Examples of strategic buyers are vendors, competitors, prime customers, and similar businesses that may want another location.  

General Individual Buyers generally engage a business broker to buy a small business.  

Financial Buyers are large buyers, such as private equity or corporate buyers.  In general, you have to have over $1,000,000 in free cash flow after executive compensation to attract their attention. 

Liquidate and Close the business.  Depending on the situation, this is a real option and something to not be afraid to do. 

Every option above has advantages and disadvantages.  In general, I have listed them in order from the most time the original owner has to remain in the business to the least time.  An original owner probably needs 5 to 7 years to transition to an internal buyer. 

Also, very roughly speaking they are listed in order from the most heart-warming situation to the least.  This subject is very subjective, but it is important for the original business owner.  

Finally, the top half probably involves some degree of owner financing, with the last two probably not.  

I can help you by discussing these various options in greater detail.  If your timeline is out there a way, we can create a to-do list that will better prepare the business when transition time comes.  Depending on the situation, you may want to engage a business broker.  We can discuss all of this and help you devise a general plan.