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by Maggie Hughes on July 29, 2024
Whether you’re retiring, selling your business, or moving on to a new opportunity, exiting your business is a key part of good business planning. Preparing for a transition doesn’t mean you plan on leaving the business tomorrow; it is simply a wise strategy to ensure your business remains successful and valuable. There are a variety of different ways you can exit your business. Let's cover the various ways you can exit your business successfully.
The Different Kinds of Exits
Understanding the different kinds of business exit strategies is crucial for making an informed decision that aligns with your personal and business goals. Exit strategies can broadly be categorized into internal and external options, with some hybrid approaches becoming more popular.
A well-prepared business owner typically has multiple business exits on the table. Scott Snider, president of The Exit Planning Institute, explains, “A well-prepared business owner and company has multiple exit options. That’s the beauty of exit planning. I think as an owner, you would like to have multiple options on the table. The owner can take one bite of the apple or multiple along the way.”
How CEPAs Help
Certified Exit Planning Advisors (CEPAs) play a pivotal role in guiding you through the exit planning strategies. They are trained in the Value Acceleration Methodology, which is widely accepted as the most effective way to build and execute an exit strategy. According to Scott, “A CEPA is an educator helping the owner, their teams, and family understand exit strategy more and embrace it.”
CEPAs do not benefit financially from one transition option over another; their goal is to help you prepare and walk the path that is most important to you. They educate business owners on all the types of exit strategy so you can choose the best one for your specific needs. They also help customize the exit strategies based on your unique situation.
Types of Exit Strategies
Family Succession
A family succession involves transferring ownership and management of the business to a family member, often a child or close relative. This option ensures the business stays within the family and can maintain its legacy and values.
Management Buyout
In a management buyout, the existing management team purchases the business from the owner. This option is ideal when the management team is experienced and committed to the future success of the business.
Employee Stock Ownership Plan (ESOP)
An ESOP involves selling the business to its employees by creating an employee stock ownership plan. This option can motivate employees by giving them a stake in the company, potentially leading to increased productivity and loyalty.
Initial Public Offering (IPO)
An IPO involves offering shares of the business to the public through a stock exchange. This option can provide significant capital and liquidity but requires extensive preparation and regulatory compliance.
Recapitalization
Recapitalization involves restructuring the company’s debt and equity mixture, often to provide liquidity to the owner while maintaining control of the business. This strategy can be a way to take some cash out of the business without fully exiting.
Franchising or Licensing
Franchising or licensing involves allowing others to use your business model, brand, and processes in exchange for a fee or royalties. This option can provide ongoing revenue streams and expand the business's reach without the owner being involved in day-to-day operations.
Merger and Acquisition (M&A) with Another Business
Merging with or being acquired by another business involves combining with another company, often to achieve synergies and increased market share. This option can provide a profitable exit while ensuring the business's continued growth and success.
Liquidation
Liquidation involves selling off the business’s assets and closing it down. This option is often considered when other exit strategies are not viable. It can provide a quick exit but may result in a lower return compared to other strategies.
From Successful to Significant
Exiting your business is a significant decision that requires careful planning and consideration of all available options. A CEPA can help you with whatever exit strategies you choose and assist in evaluating the best strategy for your unique situation. As Scott advises, the first steps for a business owner include educating yourself, hiring qualified advisors, and conducting an Enterprise Value Assessment.
Remember, “A well-prepared business owner and company has multiple business exit strategies.” Work with a CEPA today and embracing a holistic approach that considers business, personal, and financial goals, you can ensure a successful and profitable transition, building value now and for the future.
