Nine Ways to Leave Your Business
In the last issue (#17), we highlighted some of the differences between Small Businesses vs. Middle Market Businesses. This issue will discuss 9 Ways to Leave Your Business.
"Look for your choices, pick the best one, then go with it." Pat Riley
Nine Ways to Leave Your Business
Selling your business is not the only way to leave your business. There are other options of which you should be aware. In the list that follows, depending on the nature, size and profitability of your business, some methods may not be achievable. After reviewing the list, you’ll see that some exit options are more desirable than others. In future issues we will discuss types of buyers for the “sell your business” option in greater detail.
Before embarking on the sale of your business, you should understand your nine exit options.
1) Sell your business
Possible buyers include co-owners, family members, friends, individual buyers, a single employee, a management buyout (MBO), a management-led leveraged buyout (LBO), an Employee Stock Ownership Plan (ESOP), larger corporations (strategic acquisitions), private equity groups (PEGS) or private investment groups (PIGS) (also known as financial buyers), customers, suppliers, and competitors.
2) Gift your business ownership
Possible recipients include family members, friends, employees, or charitable organizations. The tax implications of gifting your business are very complex and may require a considerable amount of time to plan the transition of your business through gifting. If this is your chosen method of exit, start planning many years in advance of your desired exit date.
3) Hire a manager for the business and become a passive owner
In this situation you would still own the business; this is really a quasi-exit option. Obviously, unless you fund the business out of your own savings, the business needs to generate enough cash flow to allow you to hire a qualified manager, enabling you to step away from the business to the extent that you desire.
4) Liquidate the assets
If your business cannot be sold as a going concern for more than the value of your hard assets, liquidating the saleable assets through auction is one method of generating funds. However, any sales proceeds must pay off the debts of the business before you can be paid. This is one of the least desirable exit options and is the price many business owners pay for their failure to adequately plan their business exit.
5) Close up shop
If the business cannot be sold as a going concern and does not have any assets of real value, and the business does not have other obligations in the form of debts, leases, etc., an owner can just close the business and walk away. Or, if corporate obligations exist, those obligations can be transferred to the owner personally.
6) Bankruptcy
If the value of the business, whether as a going concern or its asset liquidation value, is ….
