Thought Leadership on Ownership Transition presented by Prairie Capital Advisors, Inc.
There are several paths you can take when it comes time to transition ownership of your business. How do you determine which one is right for you? For an owner of a closely held business, few questions require as much soul-searching as the issue of whom to transition ownership to when it’s time for you to retire. That’s understandable, of course. For years, your business has consumed your days and sometimes your nights – can you count the number of times you were stuck at the office working late? Like one of your children, you want to protect your business, nourish it, help it grow and then give it the freedom to start a new life.
But in order to ensure your business will continue to thrive, you need to know your ownership transition alternatives and plan an exit strategy – sooner, rather than later. Too often, owners of closely held businesses fail to adequately plan for ownership transition – or plan too late. This limits the choices available, and the business owner may have to settle for a solution that is less perfect. By planning early, one has more options available and can begin taking steps to put a plan in place.
Several ownership transition alternatives exist:
- Transition of ownership to a family member
- Sale of the business to a third party (strategic buyers, financial buyers, whole or partial sale)
- Management buyout (MBO)
- Sale to employees through an Employee Stock Ownership Plan (ESOP)
- Leveraged recapitalization
- Combination of two or more of the above options
These alternatives move the ownership in very different ways; however each has its own possibilities and limitations. The alternative that is right for you can only be determined after careful analysis of several factors.