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Financial advisors who serve business owner clients know how critical it is for these clients to have an exit strategy from the business. The business is often their largest asset or at least a significant component of their wealth. It’s also a key part of the business owner’s identity in many cases. 

Here are some considerations in crafting a business exit strategy.

How will the ownership of the business be transferred?

There are a number of alternatives for transferring the ownership of a business. Your help can be essential to your client in deciding the best course of action for their situation. 

Outright sale to a third-party

This entails selling the business to an outside entity. It will typically be a cash sale. The owner will generally exit the firm immediately or after a transition period. 

Transferring ownership within the family

This might be appropriate if there are family members involved in the business or those who would like to be involved. There are a number of considerations here, not the least of which is, are these family members qualified to run the business on an ongoing basis? 

Selling/transferring ownership to a co-owner or partner

If your client has a co-owner or business partner, there should be a mechanism in place to facilitate transferring your client’s ownership interests to these partners. If there is no plan in place, you should work with your client to ensure this is done. Your role can be to facilitate the process among owners and outside advisors as needed. 

Selling the business to key employees

In some cases, it may make sense to sell the firm to one or more key employees. These might be senior managers or key long-time employees. They likely have the experience and client relationships to help the business continue to the next level. 

Key planning considerations

Each of these types of transactions have some unique aspects, but here are key planning considerations that you should help your client work through.

  • How will your client be compensated? As mentioned above, an outright sale to a third-party will generally be a cash transaction. But in the case of selling to a partner, transferring the business within the family or selling to key employees, it’s important to map out a specific methodology for any payment for the business.
  • Tax and estate planning considerations. Again, depending upon the method of transferring ownership, income and estate plan tax issues might come into play. Your planning should address these issues and help the client create a strategy to minimize these issues to the extent possible.
  • Make sure your client is saving for retirement. This is critical and can be a source of value to them especially in the event the transfer of the business doesn’t pan out well financially. Having a business retirement plan in place, of course, has many benefits for your client. 
  • Ensure the business is set up to run without them. It’s important to prod your client, if needed, to take steps to ensure the business can run without them. It can be tough for them to let go, but this is a critical step.
  • Obtain an outside, independent valuation for the business. This is a key number in a lot of respects, including tax considerations and a potential selling price.

Your business owner clients need your guidance in crafting an exit strategy from their business. Whether it’s specific advice or helping them coordinate the efforts of several advisors, such as a tax advisor, attorney or others, your role as their trusted advisor can be key to the success of this process. 


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