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Exit Strategies for Small Business Owners

  • May 5, 2020

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Exit Strategies for Small Business Owners

It may seem absurdly premature or even pessimistic, but from the time any entrepreneur establishes an enterprise, they should be considering exit strategies for small business owners. An exit strategy is a plan that defines how the founder or owner of a business will transfer ownership, operations, or both from themselves to another person or entity. Basically, it is a plan for what happens when a business owner decides to move on—either to retire or to start a new enterprise.

All in the Family

If you are among the millions who have binge-watched Succession, you might think that keeping the legacy of a business in the family is perilous and fraught with drama. It doesn’t have to be. Founders of family businesses have a ready pool of possible successors to prepare and groom to take over when you want to step aside. Consider whether there is an obvious choice among the family to take over—one who is interested in keeping the business going and learning from you how to do it—as well as how much emotion will be involved with other family members who aren’t selected. Your heir may not have the same personal capital with your employees and suppliers, so you might need to stick around longer than you wish to facilitate a smooth transition.

Sell to Managers or Employees

Leaving your business in the hands of those already running it may seem like a good option. A transfer of operations may be smoother if the person taking over is already known and respected by employees and suppliers. Then again, there may not be an individual among your employees with the desire or the resources to buy your business. A group of employees might be able to share the cost of a purchase if there is sufficient interest.

Take a Backseat

Hiring a manager to take on day-to-day operations is one way to perpetuate your business while reducing your investment of time and energy. You’ll be available to act as a mentor and, even better, continue to collect payouts due to the business owner. However, this isn’t a good strategy for those who find it hard to let go—there is no reason to hire a manager if you won’t stop doing the manager’s job.

Sell the Business

For many business owners, selling makes the most sense. A clean break, or a structured transition that phases out your role in the business, is one way to depart with a profit and few regrets. Selling a business is every bit as complicated as starting one in the first place, so many small business owners look to the expertise of a professional business broker for help and guidance in preparing for and closing a successful sale.

Less attractive exit strategies for small businesses, such as liquidation or even bankruptcy, are usually the last resort for small businesses but, in some unfortunate circumstances, may be necessary. When you start a business, include an exit plan in your preparations to anticipate how many years you want to run your business and what you’ll do when it is time to move on.