Starting and successfully growing a small business is no small feat, but there may come a time when it’s in a business owner’s best interest to exit the company they built.
While covering everything you need to know about pulling off a successful exit could fill volumes, a few key takeaways will help ensure the process goes smoothly. But it starts with an important question.
Why are you exiting your business?
Determining the best way to exit your business depends on why you're leaving in the first place. Let’s review the three most common reasons owners consider exiting.
Selling the business. There are several compelling reasons to sell your business. Perhaps being acquired was always the plan. Or perhaps you are unsure of future market conditions and want to exit while still "on top." Maybe you're just tired of the responsibilities that come with business ownership. When it comes to selling your business, regardless of the reason, the goal is to maximize your business's value to get the highest possible price.
Retirement and succession. Retiring and handing the business over to a family member or trusted employee allows you to exit the business without selling it. Perhaps you’ll maintain a financial interest in the business or act in a paid advisory role. In this case, the goal is to have systems in place that operate without your day-to-day involvement but still provide a passive income.
Liquidation. Perhaps the simplest exit strategy is closing the doors of your business and selling off its assets, but it is also the least financially rewarding. If liquidation is your goal, you’ll need to accurately assess the value of your business assets and then sell each to the highest possible bidder.
You also want to delineate your objectives and options in exiting the business. A Mid-Cape retailer came to SCORE asking for help in selling her business. After several sessions of reviewing both personal objectives and options, we collectively decided on a year-long inventory reduction (not a clearance sale) and then sale of the real estate separately which, collectively, generate a much larger net for the owner than an outright sale of the business.
Start Planning Early
No matter the reason for leaving your business, the most important advice is to start your exit planning well in advance. Most experts recommend planning at least three to five years ahead. Some even generate a broad exit strategy when launching the business.
This lead time gives you plenty of time to maximize your business value in the event you wish to sell, prepare a succession plan (and your successor) in the event you want to pass the business along to another party or value your assets in the event you want to liquidate. Ample planning time also allows you to consult with accountants and lawyers to develop strategies for unforeseen contingencies.