Whichever way you look at it, making a conscious choice to take a step back and release some value from your business is a monumental decision that involves both emotional and financial considerations. Once you’ve decided that it’s time to consider your options, the next question is: what’s the best way to exit? Fortunately, there are a wide range of options available, each bringing their own dynamics, benefits and potential challenges. Here, we give an overview of four of the most common routes a business owner can take.

1. Trade Sale: Selling to a Strategic Buyer

A trade sale involves selling your business to another company, often within the same industry. Strategic buyers are typically interested in acquiring your business for its synergies – whether it’s your customer base, intellectual property, or market position.

Pros:

• Potential for a high sale price, as strategic buyers value your business’s ability to enhance their operations.
• Quick exit timeline if the buyer is motivated.
• Opportunity for your business to grow within a larger organization.

Cons:

• High level of due diligence required, which can be time-consuming.
• Cultural or operational differences between the buyer and your business.
• Possible change of identity for your business post-sale.

A trade sale can be ideal if you’re looking for a clean break and want to maximize the financial return.

2. Private Equity Investment: Partnering with Financial Backers

Private equity firms invest in businesses with growth potential, often acquiring a majority or significant minority stake. Unlike strategic buyers, their focus is on scaling the business and achieving a return on investment.

Pros:

• Access to capital for growth and expansion.
• Retain a level of involvement in the business, if desired.
• Expertise and resources from experienced investors.

Cons:

• Pressure to deliver results within a set timeframe (typically 3-7 years).
• Potential loss of control if the private equity firm takes a majority stake.
• May not be suitable for businesses without clear growth prospects.

If you want to take some cash off the table and remain involved while accessing funds and expertise to take your business to the next level, private equity can be a compelling option.

3. Debt-Funded Management Buyout (MBO): Selling to Your Team

In a debt-funded MBO, your management team buys the business, usually with financing from banks or other lenders. This option keeps the business in familiar hands while providing you with an exit.

Pros:

• Continuity for employees, customers, and suppliers.
• Smooth transition, as the management team already knows the business.
• Opportunity to reward loyal managers with ownership.

Cons:

• Relies heavily on the team’s ability to secure financing.
• Sale price may be lower compared to other options.
• Can be risky if the management team lacks the skills to navigate ownership.

An MBO can be ideal if you prioritize the legacy and continuity of your business.

4. Transition to an Employee Ownership Trust (EOT)

An EOT allows you to sell the business to your employees, creating shared ownership. This structure is increasingly popular as it offers tax benefits and ensures the long-term welfare of employees.

Pros:

• Maintains the culture and values of the business.
• Significant tax advantages for both the seller and employees.
• Builds loyalty and motivation among employees.

Cons:

• May require a phased exit rather than a quick sale.
• Sale price might be lower than other options.
• Requires clear governance to manage the trust effectively.

If your goal is to leave a lasting legacy and reward your team, an EOT can be a highly satisfying option.

Choosing the Right Path

Each sale option has its own merits and challenges and the best choice depends on your individual goals and aspirations: Do you want to maximize financial returns? Ensure the business’s continuity? Reward your team? Or scale the business further with new investment?

By exploring your options early and seeking advice from trusted advisors, you’ll be better equipped to make a decision that aligns with your vision and values.