Top 7 Small Business and Startup Exit Strategies to Explore

One critical aspect of every business plan that few entrepreneurs and business owners consider in advance is an exit strategy. 

It may seem counterintuitive to focus on your exit strategy while running a business, but without it, you don’t have a path for transfer of ownership. That means no plan for how you’ll achieve your return on your investment — at least the financial investments you’ve made in your startup or small business.

As an entrepreneur, small business owner, or startup founder, what are your options? 

Most startup founders and small business owners are well aware of some of the flashier ways to sell a business: the initial public offering (IPO) and the acquisition get a lot of attention. But those aren’t the only business exit strategies, and they may not be good options for every entrepreneur.

Top Strategies for Cashing Out On a Business Before Retirement

Just as a steady flow of cash is key to a healthy company, sometimes events in life demand access to liquidity. 

ESOP Pros and Cons: Overcoming 9 Common Misconceptions

In the course of investigating exit strategies, business owners often look for a straightforward comparison of the different ways to sell a company.

Unfortunately, side-by-side comparisons are hard to come by. And, when you find them, they’re often oversimplified and even inaccurate. Besides, every business is different, and so are the needs of every seller. You may not get the answers you need.

Owners also often look to trusted advisors — attorneys, accountants, financial advisors, and other specialists — when the need to sell the business appears on the horizon. 

Business Exit Planning: 5 Classic Strategies + One You May Have Missed

Most business owners recognize the value of planning for building and growing a successful company.

It takes entrepreneurial thinking and strong problem-solving skills to start and grow a business, and your exit — whether for retirement or another reason — is just as important a phase in the lifecycle of your company.

As a business owner, your exit strategy plan matters not only to you and your family, but also to your employees, customers, vendors, strategic partners, and the community at large.

Some entrepreneurs include an exit strategy in their initial business plan. That’s a great idea, but it’s also vital to recognize when conditions change and other options may become more beneficial.

Creating an exit strategy business plan well in advance can give you the advantage of clarity in the planning process as you make strategic choices that can strengthen your position for a sale, merger, or other deal.

Why Financial Advisors Need to Know About ESOPs

As a financial advisor, your sole responsibility is the financial health of your clients. For clients who own a business, that includes the eventual transition of their company to new ownership. Are you prepared to guide them through this transition and to handle the significant shifts in their portfolio that will inevitably come about?

Selling to an ESOP Transfers Assets & Liabilities in Stock Sale

When a business is sold to a third party, the buyer generally prefers to purchase a company’s assets rather than its stock, whereas the seller would rather sell the stock. As a result, the decision of asset sale or stock sale is often subject to the negotiation process. A very powerful benefit of selling to an ESOP is that an ESOP transaction is always a stock sale.

Selling to An ESOP Provides an 8% - 10% Expected Rate of Return

We have been exploring the many benefits of selling to an ESOP, including how selling to an ESOP can increase after-tax proceeds by over 40%, and selling to an ESOP enables a business owner to sell in 90-120 days.

Selling to an ESOP Can Increase After-Tax Proceeds by Over 40%

When a business is sold to a third party, the buyer generally prefers to purchase a company’s assets rather than its stock for liability and tax reasons. Selling to an ESOP is always a stock sale which is more favorable from a tax standpoint than a traditional asset sale. When analyzing the purchase price, it is essential to consider the after-tax proceeds when comparing an ESOP transaction sale to a third-party sale.

ESOP Companies Grow Faster and Are More Recession-Proof

ESOP Business Exit Strategy: Sell While Retaining Company Control

Business owners often put off Succession Planning or even contemplating the thought of selling their business because they are not ready to retire or they have not identified or properly trained their replacements.  They may also legitimately worry about the loss of control when selling to a third party.  Including an ESOP in the Business Succession Plan enables a business owner to sell part or all of their company, Tapping into an Otherwise Illiquid Asset and Providing the Business Owner with Liquidity and Diversification, while remaining in control of the day-to-day operations of the company.

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