Choosing the Right Exit Strategy for Your Business

When you’re ready to call it quits, you just list your business and sell it or turn it over to a relative, right? Not if you expect your business to survive and the proceeds from the sale or future profits to fund your retirement. The statistics say that’s unlikely without exit planning or succession planning, with only 30% of listed businesses selling due to poor (or nonexistent) planning.

Exit planning is preparing to sell or transfer your business based on your personal and financial goals. To step away when and how you want, you should have a written strategy at least three to five years—or even 10 years—before your exit.

Here’s a closer look at choosing the right exit strategy for your business and how an exit-planning advisor can help.

Selling As an Exit Strategy

Selling a business can happen as a merger, initial public offering, or sale to a third party. All allow you to walk away with cash. However, each type of sale requires careful planning to help your business continue to succeed.

Selling to an external party can increase your payout, offer a clear exit, and provide an immediate financial return. However, it also could disrupt the company culture and kill your legacy.

Succession As an Exit Strategy

Succession planning implements your long-term vision for your company. You can pass your business to a chosen successor, such as a family member or key employee.

This exit strategy works best when you can devote time to developing those you select to run the company in your absence, giving them the skills, knowledge, and experience to take over as leaders who understand and value the company culture.

Succession planning doesn’t offer a clean break for business owners, and emotional conflicts can bubble up. Also, the time and costs of mentoring and development may be too high for some.

Choosing Between Selling and Succession Planning

Leaving your business behind is not easy—but it’s often the right choice. Consider the following questions when deciding whether to sell or seek a successor for your business:

• What are your personal and financial goals?
• Is your business ready for the transition?
• What are your family dynamics, and is someone prepared to take over?
• What is the value of your business, and what are the market conditions?
• Have you done tax and estate planning?

While you answer these questions, you might consider additional factors, such as the impact on your employees.

Selling and Succession Planning Examples

Big or small, companies that are ready for the exit of their founders or leaders can find success. Those who don’t plan often fail or waste time, effort, and money.

Compare the outcomes of these examples:

Selling

PayPal began in 1998, and its founders successfully exited when eBay purchased the online payment platform in 2002—for $1.5 billion.

On the other hand, Yahoo is an example of a company that failed to take advantage of other company exits and didn’t maximize its own. Yahoo turned down a sale to Microsoft in 2008 for $44.6 billion, only to sell to Verizon in 2016 for $4.6 billion.

Succession Planning

When Sam Walton died in April 1992, Walmart passed to his children. Thanks to his careful succession planning, the Waltons are now the richest family in America.

A notable succession planning failure occurred when Bill Gates, founder of Microsoft, stepped down as CEO in 2000. Steve Ballmer, his successor, struggled to keep the company competitive and missed opportunities in emerging markets. Ballmer later resigned abruptly, setting off a search for a CEO for Microsoft.

There’s no right or wrong way to exit a business, but there is a way that works for you and your goals.

Get Guidance on Selling or Succession Planning

When you leave behind the business you nurtured into existence, time is your ally. At Business Owner Succession Strategies, we help business owners like you plan for the future of their business.