You’ve built your business from day one, worked diligently to make it a success, but all that work has burned you out and now you are ready to move on to the next stage of your life. What kind of options do you have for exiting your role as owner and leader of your business?
There are six ways out:
(1) Sell your business to a family member.
(2) Sell your business to your partners or employees.
(3) Sell your business to a 3rd party.
(4) Make yourself an absentee owner.
(5) Liquidate your business.
Some of these options are obviously more appealing than others. As a business owner, your exit strategy needs to be something you are thinking about even from day one. If you don’t consider or plan your exit strategy, then inevitably you will end up at one or both of the last two options, which would not be ideal.
Let’s look at option 1. Selling or handing over your business to a family member can be a great option, especially if they have worked alongside you in the business and know it inside and out. They key to success in a family transfer of ownership is the entrepreneurial drive. You might have spent countless hours working on your business, but will your son or daughter have the drive to do the same? Do they really want to own and run the business, or are they agreeing to a potential takeover simply because they feel obligated to do so? These are important questions to answer before you hand over your business to someone who is ill-prepared to take on the responsibility.
Option 2 can also be a fantastic option, as employees and partners are already very familiar with the ins and outs of day to day operations, and should have a fairly easy time transitioning to the leadership role. Here you will also need to ask questions like are they willing to stay on long-term, and do they have the same entrepreneurial spirit that has driven you. These questions are critical if you are taking payments and transferring equity over time, because the future of the business determines whether or not you get paid in the end.
Here we will skip to option 4, becoming an absentee owner, because of its similarities to options 1 and 2. To be an absentee owner, you will have to have a fantastic relationship with the management you put in place, be able to trust that management to run the business without you, and know that the management will work just as hard as you have to maintain and grow the business. Absentee ownership works well in situations where a family member becomes the businesses’ leader, or where a trusted and knowledgeable employee can take over. Unless you already have this type of situation ready to go into place, it will likely not be the best option for you.
So what is the best option overall? Clearly it’s not the last two.
The best option, as far as getting the best financial return for your investment in the business is to sell to a third party. By selling to someone outside your circle, you are able to get fair market value, instead of feeling obligated to give your child (for example) a break on the price. Another major advantage to a third party sale is that you will not have any more personal responsibility to the business (unlike if you are an absentee owner with a former employee in command, or if your daughter takes over the business and occasionally asks you for help), leaving you free to pursue whatever the next step of your life has in store for you.
Are you ready to take the next step in life and sell your business? Do you have questions about which option would be the best for you and your business? Please leave us a comment or question, and we will be happy to assist you with your future sale.