Family Business Exit Strategy: Know Your Options

Developing a family business exit strategy is more than just a financial decision. Your strategy not only secures your financial future, but it also determines loved ones’ livelihoods. This personal and often complicated decision deserves thoughtful consideration.

In this post we cover everything you need to know about developing your family business exit strategy, from timing to choosing the right action plan. While no two situations are identical, this guide will help you make an informed choice.

Why a Family Business Exit Strategy Matters

As a family business owner, you know firsthand how much your company means to you and those around you. Your business has brought opportunities to your family and employees, positive experiences to your customers, and a sense of purpose to your work. As much as securing your financial future is important, so is preserving your company legacy and protecting the careers of those you care about. That is why this post is so important— with the right exit strategy, you do not have to sacrifice your company vision for financial security.

Is Now the Right Time?

Eventually, it comes time for every business owner to pass on the torch. These reasons can vary from retirement planning, to navigating illness, to changes in family dynamics, or even simply wanting a career change. Whatever the exact reason, deciding it is time to move on is the first step. If you are unsure, it is important to reflect and ask yourself, should I sell my business?

The second piece is how to receive the most value from a business sale. It is often helpful to conduct a business valuation to get a rough idea of what your company could be worth, and then make decisions accordingly. For example, if your business valuation reveals a company sale could be especially lucrative, you may consider selling soon. On the other hand, if a valuation suggests areas to improve your business worth, waiting may make sense— if possible.

Should Family Carry On the Torch?

For owners of a family business, the important question is: is my child fit to run the business? The answer to this question helps determine what the best family business exit strategy is. It can be hard to set emotions aside and answer this question logically, especially when your company and your children mean so much to you. However, answering this question honestly is essential for your business’s continued success.

There are really two pieces to this question. The first is, does your child want to run the business? If your potential successor has no desire to step up to the plate, then his or her capability is irrelevant. If the family member in question does want to run the business, then you must consider if he or she is capable. Answering that question can be difficult, and it is important to keep in mind that even the right successor will likely need mentorship.

For this reason, it helps to develop a family business exit strategy a year or two before the transition. This gives the new leader time to learn the ropes and prepare to step into his or her new role. That way, you will feel confident when it comes time to pass the baton.

Choosing the Right Family Business Exit Strategy

There are a variety of options to consider. Making the right choice for your business’s health as well as your financial security can be complicated. Finding the perfect family business exit strategy can prove even more challenging when you need liquidation to retire while wanting a family member to continue your legacy.

To help you explore your options, we list possibilities below— so you have all the information, whether you plan on a family member taking over or not.

Management Buyout

A management buyout is, like it sounds, when existing management purchases the company from the previous owner. This can be a good option when there is no family successor to inherit the business.

A management buyout allows you to personally select a buyer or buyers you know, giving you confidence that your company will be in good hands. It also makes for a smoother transition, as the new owners are already familiar with the company. At the same time, you gain the financing needed for retirement or the next phase of life.

Unfortunately, the purchase price in a management buyout may be less than the owner would have received in a competitive auction. However, this downside may be worth it for the assurance that the company will be “run as before.”

Sell to the Family Successor

This option would accomplish the previous owners’ goals: secure retirement funds and allow the next generation leader to own the business. However, there are some issues.

Selling the company to a loved one may put financial strain on the new owner, which creates a conflict of interest when working with family. If this route is selected, the new owner will likely need to repay his or her parents through issuing a seller note rather than a lump sum, which is not ideal for the sellers.

Gift the Company

Giving the business to the next generation owner is one possibility. However, this is often not an option for the previous owners as they need financing for the next stage of life.

Sell to a Competitor

This option may be lucrative, but can prove problematic if you would like family members to remain employed. While you may be able to retire or move onto the next phase of life with higher earnings, there is no telling what business changes the new owner might make. They easily could decide to fire important family members, and make other widespread employee changes. Indeed, your business legacy is at risk here as well as family members’ careers.

Sell Without Compromise— Meet 1719 Partners

As the options above demonstrate, it is difficult to hand the reins to the next generation family member while securing retirement.

There is one way to tick all the boxes: selling to an investor who has your best interests at heart. When you sell to 1719 Partners, you gain a partner who is dedicated to continuing your company legacy. This means supporting the next generation family member as he or she runs the company. Our approach is to build off of the foundation you created— that means not firing employees, consolidating operations, or changing your company name.

With us as your partner, you receive the necessary financing to retire, while your preferred successor locks in the leadership role. Periods of transition are our expertise: we have helped dozens of companies turn transitions into success stories.

Interested in partnering with us? We would love to connect, simply contact us.