Exit Strategy for Small Business: 9 Ways to Move On

As a business owner, you should always be thinking about your next move. In some cases, that’s your exit strategy. Even if it’s not your exact next move, it’s something you should always be keeping in mind. 

What will become of your business once you’re no longer involved, and how will you come out on top? There are various options for a small business owner when they are ready to exit—and many reasons for that exit. 

See below for a guide on the best way to plan for your business’s future and the many ways you can successfully move on or transition from your business. 

First things first.  

What Is an Exit Strategy? 

An exit strategy is simply a plan for what will happen when you want to leave your business. It describes and outlines the form that the transition will take. That’s it! 

Your exit strategy doesn’t have to mean disaster, or failure, or even imminent action—in fact, many business owners start their business with the express purpose of exiting after X number of years. It doesn’t mean they are less committed entrepreneurs. It just means they are realistic. 

Reasons for Exiting

There are infinite reasons to leave or transition from a business venture, and 99.99% of them aren’t bad reasons. They include a planned exit, retirement, health problems, change of interests, an unexpected offer, a new venture, needing to raise money, wanting to spend more time with family or take care of a loved one. 

Leaving at the right time for you can often be the best decision for your business in the long run—no business is better off with a leader who can’t or doesn’t want to invest the time and effort to run it. 

The Best Kind of Exit Strategy

The best kind of exit strategy is the one that’s exactly right for you and your business—and, perhaps just as importantly, is planned well in advance. When you’re just starting out as a business owner, it’s easy to think only of your business’s growth and future success, but it’s important to be pragmatic from the very start. 

Exit strategies are not a negative. In fact, “the best reason for an exit strategy is to plan how to optimize a good situation, rather than get out of a bad one,” says Business Insider. “You don’t wait ‘til you are in trouble to think about an exit. Rather think of it as a succession plan, or a successful transition.”

This thinking makes it so you can focus on efforts that will eventually lead to the appropriate ends you want for your business. 

Important Questions

Do you want to stay involved in the business forever?

When you’re just starting your business and life is starry-eyed with promise, this question might seem almost offensive. But, again, it’s important to be realistic. Even if you spend your entire career owning the same business, most people eventually plan to retire at a certain age. Have you set up your business to make that a possibility in the way you’d like to down the line? 

Maybe you know that you can only withstand business ownership for up to 10 years—in your eyes, what would you ideally like to happen? Would you still want to be involved in the business even if you weren’t the owner? 

These are important questions to answer for yourself and make the appropriate plans. It might even be a good idea to evaluate how you feel about these questions year over year, as your life and plans evolve.  

What are your financial goals?

This, of course, is different for everyone. As much as you might love the concept of your business or the good it’s doing the world, almost every entrepreneur has financial needs and goals playing into their business plans (unfortunately, almost 70% of entrepreneurs don’t regularly save for retirement). Whatever your goals may be, this question will greatly play into your exit strategy outcome.

How do you plan for an exit?

Many business owners work with consultants or professionals to help them make the best decisions, but it’s helpful to ask yourself the above two questions first. 

John Leonotti over at QuickBooks lays out the following advice: “The planning starts with determining your personal and business goals, and then assessing your mental and financial readiness. After that, you need to identify the exit options that are most aligned with your goals and readiness.” 

At that point, you need to attend to “the executable items, such as taxes, deal structure,” and so on. You also need to understand the full value of your company to understand what your options might be.  

In short, it’s all about crystallizing your goals to make the best decision for your business at the appropriate time of exit. For more information, the Small Business Administration also has a comprehensive guide

If your exit is in the immediate future, you need to choose one plan and stick with it. But if you have the time to plan ahead, it’s a good idea to set yourself up for multiple options. Fortunately, you’ve got numerous exit strategy options to choose from when thinking about the future of your business. 

See our guide below. 

Exit Strategies A-Plenty

  • Lifestyle entrepreneur: A few sources tout this method, but it’s not exactly an exit strategy. Rather, it’s a way to reframe how you treat your business if you have certain financial goals. It basically means you pay yourself really, really well as the business owner, rather than investing more money in growing your business. 

    Consider this if you’re weary from the risks associated with trying to expand a business. This only works if you’re in a stable market with a good revenue stream, and ultimately spells a plateau in business growth. Make sure your investors or other partners are OK with doing this. If it works out, it could mean more autonomy and predictability.
  • Legacy: Many entrepreneurs want to keep their business in the family long term, and that means making plans for transitioning the company to an offspring or another relative at a certain point in time. This may seem attractive because you can groom successors over time—just make sure your family relationships can handle the volatility and stress of business ownership. 

    And while keeping the business in the family may seem like the best way to preserve your name in the business, it’s important to be practical about who is really the best person for the job of running your business.
  • Mergers and acquisitions: This means your company either gets bought by or merges with a company with similar or aligned goals to your company. Depending on who you merge/sell with, it could mean flexibility in terms of your involvement, or the freedom to walk away. Perhaps the best thing about this option is the ability to negotiate the price of the sell, whereas selling to the public (an IPO) would value your company relative to the industry. 

    This process can take a long time, however, if it happens at all—BizBuySell estimates that only 20% of businesses listed for sale actually get bought. If it’s your dream to merge or get acquired, you might want to have a Plan B just in case.
  • “Acquihire”: This is a special kind of business acquisition in which a company buys out a business simply for the sake of acquiring its talented or skilled employees. While this means your “legacy” may not endure in name, it will help take care of your employees. Just make sure the buyer will treat them well, and negotiate with your employees’ needs in mind.
  • Management/employee buyout: It’s possible that people who already work for you, who know how to manage the business, may want to own it as well. This could result in a smoother transition and increase loyalty to your business’s legacy. And because they probably know you so well, they may allow for flexibility in terms of your involvement—perhaps they’ll want to keep you on as a mentor or advisor. 

    Just be aware that changes in management always come with some growing pains, and plan for that with existing clients.
  • Sell your stake to a partner/investor: If you aren’t the sole proprietor, it’s possible to sell off just your stake to a business partner or other investor. This can be a relatively “business-as-usual” plan, depending on the buyer.
  • Initial public offering (IPO): You can also sell your business to the public. This certainly isn’t for everyone—business conditions need to be just right for this option to be possible. Even if business is booming, your industry may not appeal to the public in a way that gets stock buyers excited, thus devaluing your company. Not to mention the fact that IPOs are very rare—only about 7,000 out of millions of companies in the U.S. are public. If it’s possible for you and the conditions are right, an IPO can be very lucrative. 

    The catch? You’ll be under intense scrutiny from stockholders and analysts—and that could mean more stress than you asked for.
  • Liquidate: Call it quits. Shut it down. Sell your assets. This doesn’t have to mean defeat—just an ending to a chapter. If you decide this is what you want to do, just remember that you’ll need to use the cash to pay off any debts and payout any shareholders. 

    The upside? You’ll never have to worry about the business again, free of the chains involved in trying to preserve a legacy. However, it’s likely you won’t get the most bang for your buck—explore other options for keeping the business going, especially if you have clients or customers who rely on your service. They might have solutions (e.g., buying power) you hadn’t thought of.
  • Bankruptcy: No one wants to file for bankruptcy protection, but this could be your last resort if something goes wrong (or you never managed to plan one of the solid exit strategies listed above). But it’s not the end of the world. Though you may have assets seized and very troublesome credit, you’ll be relieved of debts and the burden of the business if things get really bad. 

    If the option of bankruptcy does become a reality for you, see the Small Business Administration’s guide here

Even while you’re starting your business, you should be thinking about your ideal exit strategy. Hopefully this article gets you started.

This article originally ran on Fundera.com.

What will become of your business once you’re no longer involved?

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