Business owners spend most of their time on operating and expanding their enterprises. Many entrepreneurs think that when they retire, they will sell their businesses. Unfortunately, most businesses are not sold.
In many cases, the owner sells the assets and winds the business down or works until death. We all will exit our respective businesses whether voluntarily or involuntarily. Here are three ways that an owner can successfully exit their businesses.
An ESOP or Employee Stock Ownership Plan is one of the most equitable ways to exit a business. An ESOP is similar to a Profit Sharing Plan. It allows employees to participate, directly, in the financial success of a business. Under this structure, the company can use pre-tax future earnings to purchase shares from the owner. The plan can be funded with a lump sum or a periodic payment. An ESOP is a tax efficient way for an owner to exit their business.
The second way that an owner can exit a business is through the sale of the company to a strategic buyer. A strategic buyer is usually a competitor or a company who is looking to add to their customer base, product line or market share through an acquisition. Generally, a strategic buyer will pay a premium for a company to increase their competitive advantage.
Financial Buyer (PEG/PIG)
An owner can also turn to private equity or private investment groups to exit their business. These financial buyers are primarily interested in increasing revenues and reducing expenses to maximize the value to the business. Their goals are to make a profit for their investors. A financial buyer can close the sale and put money in the owners pocket relatively quickly.
Developing an exit plan should be a priority for any business owner. A proactive business advisor, financial planner, or mergers and acquisitions (M&A) professional can help you prepare and implement a plan. It is important to consider your how a liquidity event will affect your retirement plan, tax situation, and lifestyle. Once you have a plan in place you can concentrate on what you do best-building your business and serving your customers and community.