Step #6: Identify Your Exit Options

As  a business owner there are several ways that you can exit your business.

Four options to exiting your business

Privately held business owners have four basic ways to cash out:

  • Sell to an outside entity
  • Transfer the business to the next generation
  • Sell to the management team and employees (ESOP)
  • Initial public offering (IPO)

Each option comes with its own complex set of issues and questions that need answering. Look at all the available options, comparing them side-by-side, and identify which one will best help you accomplish your goals.

Selling to an outside entity

Sell to an outside entity gives you 2 choices when we talk about types of buyers.

Number 1 is the financial buyer.  This type of buyer is a usually a person who does not currently own a business but has always wanted to.  The transition period most likely will be longer for the financial buyer because they will have little or no experience in running a business life yours.

Buyer type number 2 is the strategic buyer.  This buyer will come to you as an experienced business owner ideally from a synergistic company.  That means that they own a business that is similar to yours but not exactly in the same space you currently operate.  Competitors are an example of strategic buyers however they usually will pay the least amount for your business generally speaking.  If they are a competitor from another state they might pay over fair market in order to gain a presence in your area.

Another example of a strategic buyer that often times is associated with the term financial buyer is the private investment group.  This buyer will be looking for three to as many as twenty companies to “roll up” into their stable of companies.

 Transferring the business to the next generation

When you transfer the company to the next generation you must be careful of a couple of things.  Number 1 you will want to create a deal structure that can provide the next generation with the best possible chance of long term financial success.  If your price is too high or the terms too much in your favor, this can cause stress on the business and you might not end up with the total amount of money you thought you were going to.  Number 2, you might feel an obligation to give your relatives a “good deal” right from the start.  This is certainly your choice but please remember to always calculate your income retirement needs prior to placing that kind of an offer on the table.  Do not give your relatives such a good deal that it is to the detriment of your own retirement.  After all you did build the company.

 ESOPS and Public Offerings

ESOPs and Initial Public Offerings are certainly exit strategies to consider.  But most companies valued under $50 million should not go public and companies valued under $2.5 million very seldom ever use an Employee Stock Ownership Plan when exiting.

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Posted on Mar 3, 2014

Contact Info – David Bandars

 12110 Port Grace Blvd. #201, LaVista, NE 68128