3 Exit Strategies for Small Businesses
Owning a small business can be a fulfilling journey, but there comes a time when every business owner is ready to follow a different path. Whether you're ready to retire or looking to pursue new ventures, having a well-thought-out exit plan is an important step to achieving your financial and lifestyle goals. Check out these exit strategies for small businesses.
Understanding Exit Strategies
An exit strategy is a plan for how you’ll sell your stake in the business, either partially or entirely. Although 80% of business owners want to stop working at their business within the next decade, only 20% have solid plans to transfer ownership, according to Business Enterprise Institute Inc.
Your exit strategy is a way to capitalize on your investment and transition to the next phase of your life. It should consider the business's valuation, the time it will take to sell, tax implications, and whether you have the right people and skills within the business to step down. Committing to small business exit strategy planning can enable you to have a smooth transition.
Types of Exit Strategies for Small Businesses
A clear understanding of your goals will help you determine the best exit strategy. It's also important to consider the market conditions and how they might affect your exit. Let’s explore some viable options.
1. Sell
Typically, selling your business is the most straightforward option. It’s often chosen for its simplicity and the potential for a lump-sum payout. You can sell your business to a third party or a competitor. Some small business owners opt for a management buyout option (MBO), which enables existing managers to acquire the business. An MBO is particularly common in businesses where the owners wish to retire or move on to other ventures, and the existing management team has the desire and capability to run the business themselves.
If your exit strategy involves selling the business, consider strategies to minimize capital gains taxes, such as timing the sale to coincide with a year when your income is lower or using tax-loss harvesting to offset gains. You can also spread the sale over several years through an installment sale. You’ll spread out the tax liability, potentially keeping you in a lower tax bracket each year as opposed to facing a large tax bill in a single year.
Converting your independent business to a franchise can be helpful if you know you want to sell your business down the line. Franchise conversion can enable you to attract a wider pool of buyers, and it can open potential buyers to a larger number of financing options.
2. Pass It On
For family-owned businesses, passing the business to the next generation can be a rewarding exit strategy. However, it's important to consider if your successors are interested and capable of running the business. Only 30% of small businesses survive the transition to second-generation ownership, according to SCORE. Identifying potential successors from the family and starting to involve them in the business early can help make the transition seamless. Strive to provide them with training and gradually increase their responsibilities. Having hands-on experience is essential for their understanding and future leadership of the business.
3.Liquidation
If selling the business isn't feasible, liquidation — selling off assets and closing the business — is an option. Liquidation is often seen as a last resort but can be a practical choice in certain situations.
Moran Family of Brands’ Approach to Effective Exit Strategies
Moran Family of Brands offers a competitive advantage for business owners who want to build a generational legacy or diversify their portfolio for retirement. We’re the franchisor of six aftermarket auto and window tinting brands, including Milex Complete Auto Care, Mr. Transmission, and Turbo Tint. Many of the franchisees in our system are second-generation owners who grew up in the business. Our CEO, Barbara Moran-Goodrich, bought the business from her parents in 2010.
Whether you’re starting your entrepreneurial journey as a franchisee or considering a franchise conversion, Moran can offer guidance. Throughout your tenure as a franchisee, we provide robust operational systems, processes, and training to give you the tools to build a successful business. Our systems can help make your business attractive to potential buyers, as you demonstrate efficiency and profitability.
Our franchising model is tailored to ensure that franchisees can transition out of their business smoothly and effectively, whether it's due to retirement, pursuing other interests, or other reasons. We can provide consultation and advisory services to help you understand the best options for your exit strategy, considering your personal and business goals.
As part of a franchise network, you have access to a community of other franchisees. Your franchise network can be a valuable resource when looking for potential buyers or getting advice from others who have gone through the exit process.
Become a Franchisee with Moran
Partnering with Moran can offer a seamless transition and the opportunity to see your business legacy continue to thrive. To learn more about how to become a franchisee with Moran, connect with a business consultant from our franchise team.