The answer to the question “What is the Best Exit Strategy for a Business?” can be quite different depending on the ultimate exit objectives of the business owner. Exit strategies for a business typically fall into these categories:
- Selling all or a part of the business to a third party
- Transitioning ownership and management to family members, internal owners or other known parties
- Continue to grow the business, delegate management, and retain a chairman type role, while continuing to own the business
- Controlled Liquidation
Let’s take each of these one by one:
Selling the Business To a Third Party
Selling all or part of the business to a third party often results in securing the highest price, particularly if a strategic buyer can be found. Third party sales typically allow the owner to secure more cash up front and exit from the business faster.
Selling part of the business can provide important capital for growth and can energize a business and its management team.
Additionally selling to a third party can break a deadlock that may exist within the management team or involved family members.
Transitioning Ownership
Transitioning owners internally often can be accomplished at a lower transaction cost, but may also secure a lower business valuation and cash flow to the owner. There are many different options in this category, including:
- Selling to other current owners.
- Selling to the management team, often accomplished with a leveraged management buyout.
- Transitioning ownership and management to other family members.
- Selling to the employee directly or through the creation of an ESOP.
Moving Up into the Chairman of the Board Role
Even though the company would still have to sold or liquidated eventually, a younger owner can select a exit strategy that focuses on delegating the management and control of the business and working less and less in the business. When this business exit strategy is implemented properly, the business grows, the management team stays, and the owner is happy to work less, but still receive cash distributions from the company each year.
Controlled Liquidation
For many businesses who have not built a business designed to be sold or create one larger enough to be of interest to prospective buyers, the choice is a controlled liquidation. Depending on circumstance, this may or may not involve filing for bankruptcy protection.
Conclusion
So What is the Best Exit Strategy for a Business? The best strategy will be determined by the goals of the owner, the attractiveness of the business to prospective buyers, and the availability and interest of internal buyers.
To learn more about the benefits of exit planning to determine the best exit strategy for a business, you are invited to WATCH THIS VIDEO.