What is a business exit strategy?
A business exit strategy is a plan for what you'll do with your business when you decide it's time to step away from it. This exit strategy should consider your goals and how you plan for the business to continue — or not continue — once you've moved on. With advanced planning, you can strategize the best time to sell your business or prep future owners to take over for you.
Types of business exit strategies
As a small business owner, you have a number of exit strategies available, depending on how you want to leave your business.
Pass the business onto a family member
If you dreamed of leaving your business as a legacy for future generations, passing the business onto a child or other family member might be your preferred strategy. The UBS survey found that 20% of business owners want to leave their business to their family.
Start working with your successor early to create a plan for the transfer. Talk about future plans for the company, current obstacles, and opportunities for growth.
There are some reasons to skip this strategy: If you don't have anyone interested in running your business or if you don't think you'll be able to fully hand over control and trust to a family member, you should look at another option.
Sell the business to an employee
You may have an employee interested in buying the business when you decide to step down. Depending on how well they know the ins and outs of the business, this could be a very smooth transition. They may also want to have your continued involvement as an advisor, so think about how much you'd like to be a part of the business after the sale.
If this is an option for you, start talking early with this employee about future plans and how they'll handle challenges and opportunities. You may also want to talk about preferences for structuring the eventual purchase and the transition time.
Just like with a family member, you'll want to skip this option if you don't think you have any employees that are capable of running the business without you.
Sell the business to an outside owner
Many small business owners are ready to hand their business over to someone else. The UBS survey found that 52% of business owners would prefer to sell their business when they exit. Selling your business can mean that you are able to walk away on terms — specifically pricing and continued involvement — that you negotiate.
Trying to find a buyer for your business doesn't always end in success. According to sales data from BizBuySell.com, in 2018 there were more than 40,000 businesses listed for sale and just over 10,000 reported sold.2
If you're planning to go this route, it's a good idea to spend time getting your records up to date. Put together future business projections and ensure that all of your past accounting work is up to date and accurate.
This is the most final of all your exit options. Rather than the business continuing on once you leave it, the business will end when you liquidate. To liquidate, you'd close your business, sell your assets, and pay off any outstanding debts. The decision to close and liquidate your business doesn't mean failure. It could be that you don't have a business that can be easily handed over to another person. This is especially true if your business is based on your talents (e.g.: plumbing, design, writing).
If you're planning to liquidate your business, keep a listing of all the assets you plan to sell and the approximate value of them. This will help you to keep a realistic view of how much you can hope to walk away with when you close your business.
A big drawback of liquidation is financial — you'll likely make more if you can sell your business.
Picking the best exit strategy for you
How do you know which exit strategy is right for you? Take the time to reflect and answer important questions like:
- How much do you want to continue to be involved?
- Do you have specific financial or lifestyle goals that are motivating you to exit?
- Is it important to you that the business continues after you've moved on?
Deciding to move on from your business can be a difficult decision. Whether it's to retire or do something new, leaving behind something that you've built and grown can be a difficult transition. Taking the time to plan your exit strategy before you need it can make that transition smoother. Visit your Synovus banker to start talking about your succession plan.