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What are the most common exit strategies for business owners?

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If you own a business, you may have thought about how and when you will exit it. Whether you want to retire, pursue other opportunities, or deal with unforeseen circumstances, having an exit strategy can help you achieve your goals and maximize your value. In this article, we will explore some of the most common exit strategies for business owners and how they affect the valuation of payment security.

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Adam Croft

Head of East of England M&A at KPMG
Len Bruskiewitz, CEPA
Tony Vaughan

Founder & Managing Director @ Vexus Corporate Limited | Business Sale Broker, Exit Advisor

1 Sell to a third party

One of the most common exit strategies is to sell your business to a third party, such as a competitor, a customer, a supplier, or a private equity firm. This option can provide you with a lump sum payment, a stream of income, or a combination of both, depending on the terms of the deal. However, selling to a third party also involves some challenges, such as finding a suitable buyer, negotiating the price and conditions, and dealing with legal and tax implications. To prepare for this exit strategy, you should have a clear understanding of your business value, your market position, and your growth potential.

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Adam Croft

Head of East of England M&A at KPMG
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My advice to people considering selling their business is to always commence the process when you do not need to sell - this not only ensures you maximise the potential of receiving the full value on the best possible terms, but means that if you do not find the right custodian for the next stage post your exit (including cultural fit, ethos, aligned growth strategies) then you can wait until you do. Having to transact within a fixed timeframe because of financial, health or family matters reduces not only your negotiation ability, but limits your choice of potential Buyer.

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Wayne Slavitt

Maximize the Value of Your Company Focusing on Just Two Factors | Certified Exit Planning Advisor (CEPA) | Family Business | Keynote Speaker | Author | Trusted Advisor | Error Coin Collector
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Properly preparing for the sale of a business requires an in-depth analysis of the various aspects of business risk. The intention is to reduce or eliminate as many aspects of business risk as possible BEFORE taking to buyers.

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Federico Cuevas Delint

Partner at ONEtoONE Corporate Finance | M&A Advisor | Economist
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Don't assume you can sell your business whenever you want; it demands a deep understanding of your valuation, finding the right buyers, and handling the unique selling and due diligence challenges. Preparing your business for sale and adeptly navigating the complexities are key steps.

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Sherif Mohamed CVA, Certified Corporate Director

Chief Financial Officer | Performance Improvement for Private Equity-Backed Companies | Post-Acquisition Value Creation
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Selling the business to a VC or a PE firm depends on the company size and lifecycle. Business owners will look for a financial investor more than a strategic one to take a premium price and to fund a business for growth while they are still running it.

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Tony Vaughan

Founder & Managing Director @ Vexus Corporate Limited | Business Sale Broker, Exit Advisor
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It always best to start early, the process will probably take longer than you hope and expect. You should consider working with an experienced adviser who can research suitable acquirers, protect your confidentiality and guide you through the negotiation process. It not just about doing a deal, you will want to secure your best deal with the right buyer. You will only sell once and the right adviser can help make your exit a success.

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2 Transfer to family or employees

Another common exit strategy is to transfer your business to your family members or employees, either as a gift, a sale, or a succession plan. This option can allow you to preserve your legacy, maintain your culture, and reward your loyal staff. However, transferring to family or employees also requires careful planning, communication, and training, as well as addressing the emotional and relational aspects of the transition. To prepare for this exit strategy, you should have a realistic assessment of your successors' skills, interests, and readiness, as well as a fair and transparent valuation of your business.

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Len Bruskiewitz, CEPA
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Data suggests that ~50% of business owners want to pass their businesses to a family member but in reality only ~33% end up doing so. A main reason for this is the lack of honest communication between the generations on the topic. Older generation tends to assume that the younger generation is interested and the younger generation struggles with sharing that they they are not interested in a business they have seen their parents build. Open & honest conversations are the key to avoiding this issue.

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Tony Vaughan

Founder & Managing Director @ Vexus Corporate Limited | Business Sale Broker, Exit Advisor
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Employee ownership, particularly through Employee Ownership Trusts (EOTs), offers a range of benefits for both the company and its employees, reflecting positively on the broader economy and society. The concept has gained traction as a viable exit strategy for business owners, as evidenced by the successful completion of our three EOT transactions last year. In each deal, the certainty of getting the deal across the line within a certain timeframe was paramount, especially in the absence of a workable offer from a trade or investor buyer. In the right circumstance, a simple, low risk and tax free exit strategy ensuring the ongoing business legacy.

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3 Merge with another business

A third common exit strategy is to merge your business with another business that has complementary products, services, or markets. This option can create synergies, increase your market share, and diversify your risk. However, merging with another business also entails some risks, such as losing control, facing cultural clashes, and integrating systems and processes. To prepare for this exit strategy, you should have a clear vision of your strategic fit, your competitive advantage, and your expected outcomes.

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4 Liquidate your assets

A fourth common exit strategy is to liquidate your assets and close your business. This option can be suitable if your business is struggling, facing legal issues, or losing relevance. However, liquidating your assets also means giving up your income, reputation, and relationships, as well as facing potential liabilities and taxes. To prepare for this exit strategy, you should have a thorough inventory of your assets and liabilities, a realistic estimation of your liquidation value, and a professional assistance.

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5 Keep your business as a passive income source

A fifth common exit strategy is to keep your business as a passive income source and hire a manager or a partner to run it. This option can enable you to enjoy the benefits of ownership without the hassles of management. However, keeping your business as a passive income source also implies some costs, such as paying salaries, fees, or dividends, monitoring performance, and maintaining compliance. To prepare for this exit strategy, you should have a reliable and trustworthy manager or partner, a clear and consistent agreement, and a regular and transparent reporting system.

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6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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What are the most common exit strategies for business owners?

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2

3

4

5

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1 Sell to a third party

2 Transfer to family or employees

3 Merge with another business

4 Liquidate your assets

5 Keep your business as a passive income source

6 Here’s what else to consider

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