Options for Exit: How to Transition with Confidence

Exiting a business is one of the most significant decisions an owner will make. With 73% of privately held companies in the U.S. planning to transition within the next 10 years, it’s more important than ever to proactively plan.

Without a strategy, you risk:

Undervaluing your business: Market timing and readiness impact valuation.
Operational disruption: Lack of succession planning can stall growth.
Loss of institutional knowledge: Key insights walk out the door with you.

A strategic exit plan aligns financial, operational, and emotional readiness, ensuring a smooth transition and maximizing value.

Key Steps to Prepare

We often find that when owners think about exit, they realize they have not dedicated enough time to position their business for transition, minimize tax implications, and maximize net proceeds.

Timing transforms outcomes. Planning early turns your exit into a decision instead of a deadline.

Being ready encompasses:

Valuation: Understanding your business worth and value drivers, as well as making necessary adjustments to enhance the value of your business.
Operational Readiness: Documenting processes, ensuring your team is prepared to continue under new ownership, and knowledge transfer initiatives are intact.
Financial Optimization: Having the essential foundations in place to navigate the transaction and due diligence, cleaning up your books, and working to improve EBITDA.
Strategic Planning: Tax and legal planning structured for efficiency and compliance, as well as realistic expectations and understanding of the transaction process.

Common Exit Options

Employee Ownership (ESOP)

Employee Stock Ownership Plans (ESOPs) allow you to sell to your employees, preserving culture and rewarding loyalty. There are over 6,500 ESOPs in the United States, holding total assets of over $1.8 trillion.

While the specifics of each ESOP can vary, it usually begins with establishing an ESOP trust. This trust is an independent third-party acting as a passive investor that is responsible for holding and managing company stock allocated to employees. Eligible employees become beneficial participants, acquiring shares over time based on factors like compensation and service duration, with vesting occurring gradually over three to six years.

Benefits:

Tax advantages for sellers and the company
Preservation of company culture
Flexible structure for gradual transition

An NCEO study found that being in an ESOP was associated with 92% higher median household net wealth, 33% higher median income from wages, and 53% longer median job tenure.

Challenges:

Requires valuation and financing
Governance and compliance complexity

Selling to an Outside Party

This could include competitors, suppliers, other external businesses — even customers. These buyers often have specific goals, like market expansion or diversification.

Considerations:

Market timing and buyer fit
Due diligence and confidentiality
Cultural alignment post-sale

Family Succession

Keeping ownership in the family requires careful planning and studies have found that approximately 70% of global family businesses do not have a formal succession plan in place.

However, when done well, family succession can maintain company culture and build strong company loyalty.

Real-World Example: Eckroth Music

Bill and Mary Ann Eckroth purchased a music store in Mandan, North Dakota in 1972. Over 50 years, the business passed through generations, expanded to over nine locations, and extended ownership to its employees.

Dive Deeper: Turning a Passion for Music Education into a Thriving Family Business

Sale to Key Employee(s)

Selling your business to a key employee (or a small group of key leaders) provides continuity, rewards loyalty, and keeps ownership in familiar hands. These individuals already understand the operations, team, customers, and culture, which can make for a smoother transition and protect your legacy.

This option is often appealing when you want to maintain stability and believe in your team’s ability to carry the business forward.

Family Offices

Tailored to manage wealth for high-net-worth families, these entities often seek stable, long-term investments. Family offices control their wealth and are not required to work with other investors, allowing quicker decision-making and more flexibility concerning investment timelines.

Private Equity & Venture Capital

Private Equity Groups: Private equity buyers aim for a high return on investment, typically through increasing operational efficiencies. They may bring new management into the company and reshape its strategy, focusing on long-term growth before an eventual exit. Each group generally has certain industries and company sizes they like to invest in.
Venture Capital Firms: Targeting high-growth, scalable companies, venture capital firms inject capital with the expectation of substantial future returns. While they offer financial leverage, they usually seek managerial influence, often via board representation.

Key Considerations When Exiting

Put Yourself in the Buyer’s Shoes

Adapting your business to buyers’ preferences involves clearly defining roles, understanding margin drivers, and investing in people, processes, and technology. If you are a significant part of what makes the business run, it’s important to start thinking about ways to offload and delegate.

Common attributes that align with buyer values include:

A formalized management team.
Investment in ERP systems and modern processes.
Operational practices based on the buyer-preferred accrual basis mindset.
Contracts that include documentation guaranteeing transferability.
A monthly financial package for review and an efficient monthly closing process.
Established key performance indicators (KPIs) and well-thought-out forecasts to measure performance from a financial perspective.

Industry Spotlight: Manufacturing

Manufacturing buyers want inventory availability and supply chain security to ensure they can continue the manufacturing process. They’re also drawn to achievable growth forecasts supported by supply chain and inventory capabilities.

Dive Deeper: How Manufacturers Can Expand in the Changing Marketplace

Institutional Knowledge & Succession Planning

Think of institutional knowledge as an organization’s collective memory. Possessing this knowledge can help businesses operate more efficiently and improve relationships with vendors, investors, customers, and more.

However, when a long-standing employee leaves, a substantial reserve of these insights may be lost at a significant cost to the organization.

The average large U.S. business loses $47 million in productivity each year as a direct result of inefficient knowledge sharing.

Protect intellectual capital during transition by:

Identifying key roles and successors
Implement continuous improvement strategies
Documenting critical information
Implementing knowledge transfer frameworks to avoid disruption

Emotional Preparation

Selling a business is emotional; plan for the personal transition alongside financial planning. Make sure to set clear expectations for your level of involvement. Will you remain involved in an advisory role, or do you plan on exiting completely? This decision can affect the sale terms and your choice of buyer. Strategic buyers might want you to stay on during the transition, whereas financial buyers could prefer otherwise. Establish your desired level of involvement upfront to identify the most suitable buyer.

Company Culture

A company’s culture is its lifeblood, shaping daily interactions, employee morale, and customer perception. Ensuring a cultural fit between your business and the prospective buyer is essential. A mismatch can lead to turnover, reduced productivity, and a dilution of the brand you’ve worked hard to build.

To avoid seller’s remorse, ensure that your strategic objectives align with the buyer’s. Are you both looking for sustainable long-term growth or is the focus on quick profitability? A clear understanding of what each party aims to achieve post-transaction will set the stage for a successful transition.

The Role of An Advisor

Many leaders are so deeply involved in the day-to-day operations they are unable to see potential issues that could arise. An advisor can offer different perspectives on business dynamics, act as a sounding board for leaders, and perceive nuances that leaders might not be aware of. In addition, trained transaction advisors can help you navigate the complexities of the due diligence and sell side process.

Dive Deeper: How an advisory relationship secured the future of Crane Johnson Lumber Co.

Proactive Exit Planning Ensures a Successful Transition

When the time comes to sell, there are no guarantees that a potential buyer will share the same vision for your business as it stands today. Proactive planning is critical to ensure longevity and continued success.

By taking a thoughtful approach to exit, you’re actively shaping it and increasing the likelihood of a smooth and successful transition.

Our advisors can help you prioritize improvements, reduce surprises, and prepare for a smoother, more valuable exit — on your terms.

Frequently Asked Questions

What are the most common exit strategies for business owners?

The most common exit strategies for business owners include employee ownership through an ESOP, which allows owners to sell to employees while preserving company culture and rewarding loyalty; a third-party sale, which typically maximizes liquidity by selling the business to an outside buyer; family succession, where ownership is transitioned to the next generation to maintain family legacy; and partnering with family offices, which can provide patient capital and support long-term strategic growth. Each option has unique benefits and considerations, so it’s important to align your choice with your financial goals and long-term vision.

How does employee ownership work as an exit strategy?

Employee ownership as an exit strategy typically works through an Employee Stock Ownership Plan (ESOP), which allows business owners to sell shares to employees gradually over time, helping preserve company culture and operational continuity while offering potential tax advantages for both the seller and the company and rewarding employees with a meaningful ownership stake; however, to be successful, ESOPs require thoughtful planning around valuation, financing, and ongoing governance.

What if succession to the next generation isn’t an option?

If family succession isn’t possible, business owners still have several strong alternatives, including selling to a third party to achieve liquidity and access growth opportunities, implementing an ESOP to keep ownership within the organization and preserve culture, or exploring family offices or private equity as potential buyers; working with experienced advisors can help evaluate which option best aligns with your goals, values, and timeline.

How do I emotionally prepare for selling my business?

Selling a business is more than a financial transaction — it’s a personal transition. To help emotionally prepare for this transition: acknowledge the emotional impact and plan for life after ownership, engage advisors early to reduce stress and uncertainty, and consider your legacy and how you want to stay connected to the business post-sale.

What steps should I take before selling my business?

Before selling your business, thorough preparation is essential to maximize value and ensure a smooth transition. Start with obtaining a clear valuation, optimizing financials by cleaning up books and improving profitability, strengthening operational readiness through documented processes and reduced owner dependency, developing leadership continuity by identifying and preparing successors, and addressing tax and legal planning early to ensure efficiency and compliance.

How do I document critical information for succession planning?

Succession planning isn’t just about filling positions; it’s about ensuring continuity and preserving valuable expertise within the organization. Organizations must create and maintain up-to-date SOPs, manuals, and knowledge repositories. These documents capture critical processes, workflows, historical context, and unwritten rules, and serve as references for successors. Regularly update this documentation to ensure it remains relevant.