- Author Chris Hadjiyianni
- Year Date 2017
- Location Waterloo
- Category Business
When business owners start to think about exiting their companies, the number of possible Exit Paths can seem limitless. In reality, there are only eight:
- Transfer the company to family member(s).
- Sell the business to one or more key employees.
- Sell to employees using an employee stock ownership plan (ESOP).
- Sell to one or more co-owners.
- Sell to an outside third party.
- Engage in an initial public offering (IPO).
- Retain ownership but become a passive owner.
Which of these Exit Paths do owners intend to use?
- 59% of owners anticipate a third-party sale.
- 30% anticipate a transfer to the next generation.
- 31% anticipate a management buyout.
- 6% expect to sell to an ESOP.
This white paper examines the advantages and disadvantages of each Exit Path and describes a process that enables owners to choose the best Exit Path for them.
Let’s begin with a fictional-company case study.
Ben (55), Tom (45), and Larry (35) purchased Front Range Powder Coating from its former owner. They paid book value of about $1 million. Now, seven years later, they are at a crossroads: Ben is interested in reducing his role in the company and has approached Tom and Larry about purchasing his one-third interest. However, there’s a kicker. Ben is not interested in selling his interest on the same basis as he acquired it (book value). Instead, he wants one-third of the company’s fair market value.