Succession Planning Exit Routes

July 9, 2020 | All in the family Brian Crotty, Managing Director, HDH Advisors LLC,

The most common mistake we see business owners make is that they worry that if they commit to succession planning, then they will have to aim all of their energy at leaving their businesses, whether they want to or not. We work with hundreds of different businesses every year and when business owners start to think about exiting their companies, the number of possible exit routes can seem limitless, but in fact, there are only seven we commonly encounter.

  • 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.
  • Retain ownership but become a passive owner.
  • Liquidate.

Which exit route is best for you? Which one meets your objectives? Comparing the advantages and disadvantages of each path is a good way to start making that determination. Owners need to establish their objectives (financial and personal) before they can identify the best buyers for their businesses. Once established, objectives (the timing of your exit, the amount of cash you need and the type of future owner you prefer) become standards by which you can evaluate the various exit routes.

For all owners, valuation indicates the distance they must travel to reach financial security. How they reach this and other exit objectives depends on the exit path they choose. In creating the best road map for your exit, use your objectives and the value of your business to carefully weigh the benefits and detriments of each path. Armed with this analysis and at least an advisor skilled in exit planning, you can map out the most appropriate exit path for you.