Exiting a business is perhaps the biggest decision any business owner ever makes. It has a massive impact on the rest of your life. For many business owners, it entirely dictates their retirement.
And unfortunately, for many business owners, this isn’t something they even THINK about until they’re almost ready to retire.
They make a lot of assumptions about how it’s all going to work. They assume that it’s going to work — that selling to a third party or to a family member is just going to go smoothly.
The reality is that there’s a lot that goes into selling your business — and it’s critical that the sale of your business is part of an overarching plan for your life after exit.
To make sure your exit plan lines up with your retirement and life goals, you need a clear idea of the 3 major types of exits.
1. Selling to a 3rd Party
If you’re selling to a third party, there are going to be a few more expectations on you as compared to, for example, transitioning to a family member.
Selling your business is difficult in the best of times, and right now, it’s a buyer’s market. Your business has to stand out from the crowd, which means you may have to stop business as usual and make some major changes to get your business as healthy as possible.
Otherwise, you might not be able to sell, or if you do sell, you might not be able to get the number you’re looking for.
This might mean a large amount of work for months or years to get the business in a position to sell. And if a deal is made, you might be expected to meet performance goals for a few years after the transaction to get your full compensation.
However, one of the big benefits of selling to a third party is that once you get through all this, you’re out.
2. Transition to a Family Member
Transitioning a business to a family member can be much more complicated than it looks at first glance.
For example, it might be the case that no one in your family even wants the business. Even if it’s your plan, it might not be their plan, and too often, this comes as a shock to the business owner.
If a family member does want the business, you have to make sure they’re actually qualified to run the business. Just because your son wants to run the business doesn’t mean he can actually do it.
Just being qualified isn’t enough — your existing team has to be willing to support and work under your family member. If not, you might need to put a plan together to bring on new team members, or even replace the team entirely.
Once this is all settled, you have to think about how they’re going to finance all this. If you’re planning to get your payout over time, then your quality of life during retirement — or your retirement itself — is potentially put at risk if the business stops performing.
If they’re going to fund the sale through a third party, then you’re essentially selling to that third party — you have to take the same actions to shore up the health of the business that you’d have to take if you were selling directly to a third party.
Though it has many difficulties, there are of course benefits to selling to a family member. If that family member has been working there a long time, you might have an extremely loyal team that will perform well under the new management. It may not even feel like much of a shift for them.
That loyalty might mean the business will continue to thrive — it will just be business as usual. That means the people you’ve worked with all those years are more likely to keep their jobs and continue to be happy in their positions.
The fear that comes with an unknown third-party purchase — and potential staff changes — won’t be there.
Essentially, those people you care about will be taken care of.
Selling to a family member creates a legacy. You’re leaving something behind that really matters to you, your family, and your employees. For many business owners, this is more important than the money.
3. Transition or Sale to a Business Partner (or Partners)
Selling to a partner or partners comes with many of the same issues as selling or transitioning to a family member. However, another potential issue to consider is that you might need to put some agreements in place to protect yourself that you might not feel you need with a family member.
Of course, and unfortunately, it’s also possible you might need agreements in place to protect yourself from a family member. However, with someone outside the family — even if they’re someone you’ve known and trusted for decades — taking legal precautions is always recommended.
Partnerships can also have ups and downs that you might not see with family-owned businesses where the dynamic is different. For example, a mother-daughter relationship is just inherently different compared to a relationship between that same mother and someone she formed a business with decades ago.
If your partnership isn’t in a good spot when it’s time to sell — for example, if there are long-standing resentments or conflicts that haven’t been resolved — then selling to them might be something you want to avoid.
You might not be able to trust them to fulfill their end of the bargain, or they might not have what it takes to run the business and be successful if they can’t step into your shoes.
So that partnership needs to be in a really good place before you think about selling. If it’s not, you might need to put in some serious work to get it there.
Your Plan for the Rest of Your Life
Exiting a business should be just a part of a larger plan for your life. It’s critical that you put together an overarching life plan and figure out how exiting your business fits into that, how it can support your goals and your vision for your life.
That way, you can work not just toward and exit, but toward the right exit.
If you don’t put in that planning and effort now — far in advance of a potential sale — you might be forced to simply liquidate your assets and get what little you can.
Or worse, you might have to walk away from the business with nothing to show for it.
If you’re ready to sell or even just thinking about it in the near future, there’s a lot of critical information you need to be successful.
That’s why we put together Get a Grip on the Value of Your Business.
Learn How to Put Your Business in the Best Position to Sell
Get a Grip is a course that will teach you everything you need to know to prepare your business for sale.
It will help you become best in class so that, even if you don’t sell, your business will run better than it ever has before.
Ready to build your business’ value?