What is the Right Exit Strategy For Me?
As a small business owner, you have options. What you choose will determine your growth path for the next few years.
As a small business owner, you may think that an exit isn’t something you can consider with your business type. Actually, all configurations and sizes of business are eligible for an exit, and you get to choose what type of exit you undertake.
When we talk about business exits, it's important to understand that there isn't just one way to exit your business. In fact, there are several paths you can take, and the right one depends on your goals, your business type, and what you want your legacy to be.
Knowing you have options can help you plan for the future path you want to build in your business.
Here are the primary exit types to choose from:
Traditional Business Sale
The most straightforward exit is selling your business to another company or individual. This could be a competitor who wants to expand, an entrepreneur looking for an established business, or even a larger corporation interested in your market share. In this type of exit, you typically receive a lump sum payment or a combination of upfront cash and future payments.
Asset Sale
While this isn’t technically an exit from your business entirely, the sale of assets in your business can still create a lucrative wealth event, and transition a significant portion of the business out of your ownership. Assets sales are more common than you might think, and provide a great option for a quick transition from one owner to another.
Family Succession
Passing your business down to family members is another common exit strategy. This can be especially meaningful if you've built something you want to keep in the family. It requires careful planning, clear communication, and often involves training your successors well in advance of your exit.
Employee Buyout
Sometimes, the best buyers are already working in your business. An employee buyout can be structured in various ways, from a single key employee taking over to a group of employees pooling their resources. This type of exit often ensures continuity for your clients and staff.
Merger or Acquisition
In a merger or acquisition, your business combines with or is absorbed by another company. This can be an excellent option if you've built something valuable that complements another business's offerings. It often allows for the highest potential financial return, especially if there's strategic value for the buyer.
Gradual Exit
Not all exits happen overnight. A gradual exit involves slowly stepping back from the business while maintaining ownership or control. This might mean hiring a CEO to run daily operations while you remain as an advisor, or selling portions of the business over time. It's a great way to ensure a smooth transition and maintain some income.
Operational Exit
An operational exit occurs when a business owner removes themselves from day-to-day operations while maintaining ownership of the business. This differs from a gradual exit in that the owner retains full ownership and control but creates a structure where the business operates independently of their involvement. This typically involves hiring strong management teams, implementing robust systems and processes, and developing clear reporting mechanisms. The owner can then collect profits while having the freedom to pursue other interests or start new ventures. This type of exit is particularly attractive for entrepreneurs who want to maintain a steady income stream without the daily responsibilities of running the business.
Creating a Self-Managing Asset
One of the most elegant exits is transforming your business into a self-managing asset that generates passive income. This involves building systems, hiring great people, and creating processes that allow the business to run without your daily involvement. You can then choose to keep it as a source of ongoing income or sell it when the time is right.
Initial Public Offering (IPO)
While rare for small businesses, some companies do grow to the point where going public becomes an option. This involves selling shares of your company on the public market. It's complex and expensive but can potentially provide the highest financial return.
The key to a successful exit isn't just choosing the right type - it's preparing for it from the beginning. That's why we focus on building asset-based businesses rather than just income-generating ones. When you build with the end in mind, you create something that has value beyond your personal involvement.
Remember, the best exit strategy is one that aligns with your personal goals, provides financial security, and ensures the legacy you've built continues to thrive.