Your options
Exit strategies for small business owners
An exit strategy is how you'll leave your business and get paid for it. For most small business owners, there are six realistic options: pass it to family, sell to employees, hand it over to an outside successor, sell through a broker, sell to private equity or a competitor, or close it. Here's how they compare.
In short: the right exit depends on what matters most to you: price, speed, who takes over, or keeping the business going. Compare the six options below, talk to your accountant and attorney, and start years before you want to leave.
The six options at a glance
| Option | You choose who takes over? | How you're paid | Continuity for employees | Typical complexity |
|---|---|---|---|---|
| Pass to family | Yes | Gift, sale, or a mix; often over time | High | Moderate; family dynamics add to it |
| Sell to employees or managers | Yes | Usually over time; seller note or loan | High | Moderate; high for an ESOP |
| Planned succession to an outside successor | Yes | In stages over several years, largely from earnings | High | Moderate |
| Sell through a broker | Partly; you pick from who shows up | Mostly at closing, sometimes with a seller note | Depends on the buyer | Moderate |
| Sell to private equity or a competitor | Partly | Mostly at closing; sometimes part depends on future results | Often lower; changes are common | High |
| Close or liquidate | No one takes over | Whatever the assets sell for | None | Lower, but final |
These are general patterns, not rules. Every deal is different.
1. Pass the business to family
Handing the business to a son, daughter, or other relative keeps it in the family and often keeps it running much as it does today. You can give it, sell it, or combine the two, and payment is usually spread over time.
The hard questions are personal: do they truly want it, are they ready, and how do you treat children who aren't in the business fairly? See passing your business to the next generation.
2. Sell to employees or management
A manager or a small group of key employees often knows the business better than any outside buyer, and customers and staff already trust them. The challenge is money: few employees can pay the full price up front, so these deals usually combine a bank loan with payments to you over several years.
Some owners sell to all their employees through an ESOP, an employee stock ownership plan. It can work well, but it's complex and has ongoing costs, so it tends to suit larger companies. Read more inselling to an employee or family member.
3. Planned succession to an outside successor
If there's no family member or employee who can take over, an outside successor is someone who wants to run an established business for the long term. They join the business, learn it alongside you, and buy it gradually over several years, largely paid from the business's earnings.
You choose who it is, you stay involved while they settle in, and the business carries on. The trade-off is that you aren't paid in full at the start, so you need a well-drafted agreement and a successor you trust. Seephased buyouts and seller financing.
4. Sell through a broker to an outside buyer
This is the route most owners picture. A business broker values the business, markets it confidentially, screens buyers, and helps negotiate. You're usually paid most of the price at closing, though many deals include some seller financing. The broker is typically paid a commission when the sale closes.
You get to choose among the buyers who come forward, but you can't control who that is, and you may have limited say in what happens after you leave. See where to start if you want to sell andselling without a broker.
5. Sell to private equity or a competitor
Private equity firms and larger competitors sometimes pay well, especially for businesses with strong growth or something they can't easily build themselves. Private equity tends to look at larger businesses than most family firms.
Expect a formal process, detailed due diligence, and changes after the sale: new systems, new management, sometimes a merger into another company. Part of the price may depend on how the business performs after you sell (an earn-out), and you may be asked to stay on for a period.
6. Close or liquidate
Sometimes closing is the right answer, for example when the business depends entirely on your personal skills. You sell the equipment and inventory, collect what you're owed, settle debts and leases, and wind up the company.
It's simpler than a sale, but you usually get far less than the business would be worth as a going concern, and your employees lose their jobs. Many owners who close do so because they ran out of time to find someone to take over.
How to choose
Work through these questions honestly. Your answers will usually point to one or two options.
- What matters most? The highest price, the fastest exit, keeping it in the family, or keeping your people and customers looked after?
- Who could realistically take over? Is there a family member or employee who wants it and could run it?
- How do you need to be paid? Do you need most of the money at once, or would steady payments over several years suit your retirement?
- How involved do you want to stay? Some owners want a clean break; others want to stay on as an advisor for a while.
- How dependent is the business on you? The more it depends on you, the more time any handover needs.
Your accountant and attorney should help you compare the tax and legal side of each option. Start withtax questions to ask.
Start early
The owners with the most choices are the ones who start planning years before they want to leave. Time lets you make the business less reliant on you, get your records in order, find out what it's worth (free estimate), and find and prepare the right person. Owners who wait until they have to leave are more likely to end up with a rushed sale or closing.
- Write down when you'd like to step back and what you want from the exit.
- Get a rough estimate of what the business is worth.
- List everyone who could realistically take over.
- Meet your accountant and attorney about the options that fit.
- Turn your notes into a succession plan.
No family member or employee to take over?
That's where we help. We introduce owners to vetted successors who want to carry a business on and buy it gradually. We're not a broker and never list your business publicly. It's confidential, you choose who takes over, and it costs owners nothing. See how it works.
Common questions
What is an exit strategy for a small business owner?
It's your plan for how you'll leave the business and get paid for it: who takes over (or whether it closes), when you step back, and how the money reaches you. A good exit plan also protects your employees and customers along the way.
What is the best exit strategy for a small business?
There isn't one best answer. It depends on what you want most: the highest price, the fastest exit, keeping it in the family, or keeping the business going with its people. Many owners of profitable small businesses find that a family member, an employee, or an outside successor who buys gradually fits better than an outright sale.
When should I start planning my exit?
Ideally several years before you want to leave. That gives you time to make the business less dependent on you, get your records in order, and find and prepare the right person. Owners who start late often have fewer choices.
What is an ESOP?
An employee stock ownership plan (ESOP) is a kind of retirement plan that buys shares of the company on behalf of employees. It can let owners sell to their workforce, but setting one up is complex and involves ongoing legal, valuation, and administrative costs, so it tends to suit larger businesses. Ask an attorney and accountant who specialize in ESOPs whether it fits yours.
Can I exit my business gradually?
Yes. In a phased buyout, the person taking over buys the business in stages over several years, and you step back as they take on more. You're paid over time, often from the business's earnings, and you can stay involved as an advisor while it happens.