For most entrepreneurs, figuring out when and how to leave their business is far from the first thing they think of when they start one. However, the best time to install an exit strategy is when starting a business because it can help ensure a successful future. When developing a strategy, you must first consider how long you intend on staying involved with the business. Determine what financial goals you would like to achieve while owning the company and after leaving it. In addition, you must factor in whether you will have investors or creditors to pay off before exiting. Once these questions are answered, you can begin exploring your options. Your two primary options are going to be whether you want to sell the business to a new owner, or liquidate and close the business.

Sell the Business

Selling the business or transferring ownership to someone you know is a smooth and easy way to transition away from the business. This can be an employee, next of kin, or anyone else who you may be interested in carrying on your vision for the business and its legacy.

If you decide to sell to a close acquaintance, the closeness of your relationship with the buyer might make you comfortable enough to offer seller financing. This can allow you to continue to earn money while the buyer starts to run the company. It will also help them to get started without a big upfront investment. This will give you a chance to mentor the buyer, and help guide them towards fulfilling your vision for the future of the business. Since you would still be involved, customers and employees would also feel a smoother transition.

There are a few drawbacks to selling to someone you know. One is that you may feel compelled to sell for much less than what the business is worth. If the buyer is a family member, the transfer of power could cause strain in some family relationships.

You could also sell to an unknown buyer, such as a larger company. Taking this approach will likely mean a larger profit from the sale. It also means that you may have to give up on the idea of the next owner maintaining your legacy after your departure. Often a change in company ownership also results in a change in culture. These changes can alienate some customers as well as employees, inevitably leading to a few departures. Weigh the pros and cons of both selling to a trusted acquaintance or someone else. Your available options might also dictate your decision.

Close the Business

Deciding to close your doors after working so hard to build your business may be very difficult. While there are some situations where it might be preferred, it is rarely more profitable than selling. However, if you have a lot of investors or creditors to pay off, it could be your best option if you want to still walk away with some money.

One method of closing your business is to liquidate it by paying yourself a generous paycheck until funds run dry. This might provide you with a steady stream of income, but if you have any investors or employees it will most likely upset them. This also prevents your business from growing, and steadily devalues it, so if you do change your mind and decide to sell, you won’t be able to sell for very much.

You can also close out your business by performing an asset sale. With this strategy, you will close company and try to sell the assets as quickly as possible. This could include, real estate, equipment and inventory. An asset sale is a pretty simple method of selling off the business and it could make you a quick buck. If you decide to go this route, keep in mind that all creditors will have to be paid before you collect on anything.

Steps to Prepare Your Exit

Now that you know your two primary options, it is important to take the proper steps to arrive at your final decision. Start by preparing your finances, both personal and business. Business finances will help you determine the financial state of the company and its value, whereas personal finances will help you figure out how close you are to your goals. Next, consider a few different strategies and weigh your options. Once you have done this, consult with investors or stakeholders, and gather their input. Share your desire to exit the business and develop a strategy of repaying them, if necessary.

Finally, consult with a business broker. Brokers can help you to sell your business, but they can also help you to decide if it is worth selling. A business broker will perform a valuation to determine what you can expect to receive from the sale of your business on the open market. This can aid you in choosing the best exit strategy. You may find out that the company is worth much more than you expected. You may find out otherwise. Either way, the information you gain from a broker can help make your decision easier.

Once you have finalized your exit plan and are ready to put it into place, start training new leadership and transferring some of your responsibilities. This will help transition the new owner if you already know who it is. It can also help boost the value of the business if you plan on selling, because buyers will see that the business can function well without you. Next, inform your employees of your plans and answer any questions they might have. Finally, tell your customers and get them acquainted with the new owner, if you already have one picked out. If you plan on closing the business, help to transition customers by presenting them with alternatives.

When planning your exit, you seek some advisement from a professional source. The brokers at Corporate Investment Business Brokers (CIBB) have countless years of experience helping Southwest Florida business owners with their succession and exit planning. We can help determine the true market value of your business and whether selling or liquidating will help you better achieve your financial and personal goals. Contact us to begin your exit planning with a free, no-obligation consultation and business valuation estimate.