Focused On Business Law

Attorneys Sara Bradley, Marinda Neumann and Lindsay Nakagawa.

Exit planning for business owners

On Behalf of | Nov 8, 2022 | Business Law

It’s estimated that baby boomers own just under half of all small businesses and franchises in the United States. That means individuals now 58 to 76 years old will soon sell or pass thousands of businesses in California and elsewhere to others.

Owners without a clear exit plan risk having less or little control over what happens next to the business and its employees while failing to maximize their revenue opportunities. Exit planning is crucial whether you plan to pass the company to family members or sell to outsiders.

Types of exit plans

A successful exit strategy requires owners to understand the value of their business and how it’s determined, ensure that accurate tax and accounting records are kept as well as knowing how a sale affects their rights and obligations. Three types of exit plans are:

  • Selling to an unrelated third party, which puts its own management team in place
  • Transferring ownership to family, managers or other insiders and severing all ties
  • Remaining in a key role, such as company chair, and delegating day-to-day responsibilities to others

Other scenarios include selling stock through an initial public offering (IPO) or merging with a similar business or competitor.

Finding the best option

To determine which route is best for you and your business, here are some considerations:

  • High return: If you’re looking to maximize profits, selling the business to a third party or an IPO could be the best strategy.
  • Erasing debt: If the company is underwater, liquidation or bankruptcy may make sense.
  • Staying involved: If you want to retire but remain in some capacity, bequeathing it to a family member or pursuing a buyout agreement with an employee are likely options.
  • Protect employees and clients: For those who want to see the least impact possible on workers and customers, a partner or investor sale, an employee buyout or passing the company to a family member may be the best answer.

Experienced legal guidance can help assess your priorities and find an exit plan that best fits your situation. Knowledgeable attorneys also work with experts familiar with your business and industry to determine a fair value.