Determining Your Exit Strategy

As a small business owner, you hang your hat on always thinking one step ahead. From managing cash flow and juggling invoices to navigating the nuances of supply and demand, entrepreneurs know first-hand that proactive planning is the key to success.

Succession planning for your business is no different. Advanced planning will provide the smoothest transition when it’s time to move on from running your business. You need time to get everything organized for a new owner and choose your ideal exit strategy. A clean exit is usually best, where you walk away with a substantial payout and confidence that you’ve left your business is in good hands.

When it’s time to transition your business, it’s important to choose the right exit method for your unique circumstances. The more proactive you are with your approach to succession planning, the less likely you’ll find yourself rushing to make a decision that may not deliver the results you want. Here are six common exit strategies to consider, given your circumstances and future opportunities.

Pass to a Family Member

Often times, family-owned businesses have someone from the next generation preparing to take over. This can be an obvious choice if that person is already working in the business, has learned your role, and understands how the business works. If this is the case, your family member is likely familiar with staff and knows what it takes to continue to grow the business.

However, sometimes family businesses can be complicated if there is more than one sibling or relative wanting to be in control – especially if they have radically different ideas than you do. To make it easier to sell to family, here are a few tips:

At the end of the day, prioritize what’s best for the business. If a family member has the right skills, experience, and business knowledge, this option can be a smooth transition.

Sell to a Business Partner

If there is more than one owner of the business, the other owner may be interested in buying your share of the business. Sometimes business partners may feel a lot like family, so it’s important to communicate your intentions early and clearly, solve conflicts of interest, and leverage the opinions of experts. To avoid any disagreements on price, get an external valuation if there is more than one shareholder wanting control of the business.

Sell to Your Employees

An existing employee (or employees) may see buying the business as the next step in their career path. Often long-time employees make good buyers because they already know and understand the business, hold relationships with your suppliers and customers, and are likely to want to continue the way you ran the business (at least for a time).

Sell to an Outside Buyer

Finding another person or company to buy your business outright is often the best exit as you can negotiate for the highest price and leave the business without feeling any personal obligations to the new owner. To make this easier:

• Get professional help valuing your business so it’s a fair price (to both parties)
• Use an intermediary (like a business broker or adviser) to help negotiate with the buyer · Look at what similar businesses are selling for
• Prepare your business for sale by tidying, fixing and updating
• Set out your business plan for the future

Shut Down the Business

Some businesses close down because it’s difficult to transfer any value and find a buyer. In certain service industries, the owner is the business and it’s hard to justify goodwill.

Alternatively, the business could be under stress and needs to close to prevent reckless trading (expenses outweigh sales and there is no remedy in sight). If this is the case, you should liquidate all your assets for cash and pay off any debts, tax or financial obligations before winding down the business. Seek professional help if it’s likely you need to close.

Keep the Business and Install a Manager

You may decide to keep the business and employ a manager to run the day-to-day operations (this could be an existing employee or someone new). This is a popular option if the business is generating positive cash flow and you can draw dividends that provide a better return than investing the sale proceeds.

Recognizing the Right Time to Sell

When to sell can depend on what’s happening in your industry and of course, your own internal retirement clock. Indicators when to sell include:

• You’re confident on the return-on-investment for another buyer
• The business has gone as far as you can take it
• The next generation is ready to take over
• You’re ready for another challenge
• There is potential for growth.

Good timing depends largely on what the market’s doing at any given time and ideally, you’re not in a rush.

Selling your business is probably the most important decision you’ve made since you started up, so take the time to think about what’s best for you and the business. The more time you have before the sale date, the better the outcome is likely to be. Seek as much advice as you can from your accountant, business adviser, banker, industry experts, and other small businesses you trust to help guide you through your business transition.

SouthState is proud to support the small businesses in our local communities. We provide a robust suite of products and services tailored to small businesses so you can operate at maximum efficiency. No matter where you are on your entrepreneurial journey, we’re here to help you focus on the next best step for your business.