As a business owner, you will eventually come face to face with choosing a transitional path for your business. The options will vary based on the nature of your financial standing and mental readiness. These will largely dictate what exit strategy you should pursue.
The matrix below can help you figure this out.
Owner #1: Stay and Grow – Low Financial and Mental Readiness.
You are most likely a younger owner not ready for retirement whose business may be young and still finding its place in the market. Consider pursuing a recapitalization where you take on a partner or sell a share of the business to a Private Equity Group who can help you execute a growth strategy. Sacrificing ownership now will allow you to benefit to a greater extent later.
Owner #2: Get Me Out at the Highest Price – Mentally but not Financially ready.
You have worked in the business for many years and are ready to move on to some other endeavor or wish to retire but are still not in a financial position to do either. This is a difficult position to be in. The best option is sell at the highest price because if you continue to work you may be doing a disservice to yourself and the company. Although you may not get top dollar it may be the ideal time to sell since you have most likely mentally checked out of the business.
Owner #3: Well-Off but Chose to Work – Financially ready but not Mentally ready.
You’ve worked long and hard but are not yet ready to be out of the game. Your finances are sound, and you have energy and momentum left in the hopper to continue working in some capacity or another. The company is doing well and you feel confident turning over the baton but don’t want to fully exit. Consider these options; selling a percentage of the business to management or employees in a Management Buyout (MBO) or ESOP. Pursue a Recapitalization of the business with another partner or Private Equity Group or gift your shares to the next generation.
Owner #4: Rich and Ready to Go – Financially and Mentally ready!
You’re a veteran business owner with decades of experience, immense knowledge and an extensive network. Congratulations! You have started small and grown your business successfully. It is a well-oiled machine and you can retire comfortably and know that your legacy will continue. This is what the American Dream is all about and now you can pass the torch. This is one of the best quadrants to be in because it affords the most options: fully selling the company, passing it down to someone (most commonly family) or incorporating an employee stock ownership plan.
All owners should be aware of their business valuation and know which quadrant is most applicable to their situation. Once you identify which type of owner you are it is important to understand all available transition options. This will allow you to make the right choice based on your financial and mental readiness.
VR New Haven is a premier brokerage firm in New England and has helped many local businesses find not just any buyer but the right buyer. If you are interested in learning more about the options available to you please contact one of our experienced business advisors.