Arguably one of the biggest decisions an owner may face is how they will transition their business. While different types of transition options may not be right for everyone, knowing the popularity of each can help an owner start to design their transition plan to meet their life goals. Below we explain each type of business transition plan, ranked by popularity according to a 2019 Business Enterprise Institute (BEI) survey of business owners. Note that respondents could choose multiple options.
Employee Stock Ownership Plan – 13%
One of the least popular transition plans is through an employee stock ownership plan (ESOP). This plan is for owners who wish to transfer their company to employees and align company interest to incentivize the employees. Under the right circumstances, this can be a very powerful transition plan. But as indicated by the popularity, it may not be the right choice for most.
Liquidation – 13%
Typically held as a last resort, a complete liquidation of company assets is least commonly used as a means of getting money out of the business. This is typically a solution for those business who did not do any transition planning and wants to wind down the business and close its doors.
Transfer to Family – 39%
Most owners who start a business have a vision of transferring the company down to the next generation. While this starts out as the vision, less than a third of business owners eventually choose this route. Despite the challenges inherent to a family transfer, there are many offsetting rewards and benefits when careful planning is performed.
Sale to Insider – 39%
Many business owners have key employee(s) at the company. These can be an ideal candidate(s) when looking to transition a business. An insider transfer reduces the risk of the business failing and provides significant benefits to the owners who choose this option. They can see the passion and vision of their eventual heirs prior to transitioning the business.
Sale to a Third Party – 48%
The most popular transition plan is the sale to a third party. A third-party sale is often the easiest and most rewarding option for business owners. If structured correctly, this usually results in a higher sales price for the business and a larger yield of enterprise value.
Each business sale is a unique transaction with many factors to consider. Anders has an experienced team of Business Transition Planning advisors who can help you start or review your current business transition plan to make sure it meets your short-term and long-term goals. Contact an Anders advisor below to get started.
