The first time an owner tells us his kids aren’t taking over the business, he usually says it like he’s confessing to something.
He isn’t. He just hasn’t caught up to the planning yet.
For two or three generations, the default exit for a privately held business was a family handoff. Dad built it, kid runs it, grandkid maybe sells it. That default doesn’t hold anymore for most owners we meet, and the reasons it doesn’t hold are almost all good reasons – the kids have their own careers, they watched what the business cost their father, they’re not interested in the industry, or the owner himself doesn’t think they’d be good at it and is honest enough to say so.
None of that is a failure. What is a failure, quietly and expensively, is pretending the default still applies while doing no planning for the exit that’s actually coming.
The conversation tends to come out in pieces. The first piece is usually something like “my son said he doesn’t want it” or “my daughter’s got her own thing going in Chicago.” The owner delivers the sentence flatly, like he’s reporting the weather. Then a pause. Then the real part: “so I guess I’ll just have to sell it at some point.”
“I guess I’ll just have to sell it at some point” is not an exit plan. It’s a wish with a question mark attached.
The actual planning conversation starts with naming which exit is most likely, and each of the real options comes with a different five-to-ten-year preparation track. Picking the right one matters. Picking it on time matters more.
Third-party sale (Strategic Buyer): A competitor or adjacent business buying you for fit and synergy. Can include a PE firm adding you to an existing platform company. Typically the highest headline number. Fast timeline once the process starts. The work is getting the business to the condition a buyer will pay full price for clean books, reduced owner dependency, documented systems, key employees locked in.
ESOP (Employee Stock Ownership Plan): The business becomes partially or wholly owned by the employees through a trust. Significant tax advantages, slower exit, valuation tends to be fair-market rather than strategic-buyer premium. Works best for businesses with strong middle management and long-tenured employees.
Management Buyout: The existing leadership team buys the business, usually with seller financing and sometimes with outside capital. Preserves continuity, often at a lower
headline number than a strategic sale, with the seller carrying some of the transaction on paper for years afterward.
Platform acquisition (Search Fund or PE): Individual searchers or private equity firms buying your business as a standalone platform rather than an add-on. Aggressive buyers right now for businesses in the $2M to $20M EBITDA range. Usually structured with the owner staying on for a transition period and often rolling equity into the new entity.
Each of these has a completely different profile on timeline, proceeds, tax treatment, after-sale involvement, and what needs to be true about the business at the time of sale. The preparation work doesn’t start when you decide to sell. It starts at least five years, ideally seven to ten, before the transaction.
Here’s the part owners tend to be surprised by:
Valuation is almost never the actual fight in a business sale. Structure is.
Two buyers can offer the same headline number and leave the seller with dramatically different after-tax outcomes, depending on asset sale versus stock sale, earnouts, seller financing, escrow holdbacks, working capital adjustments, representations and warranties, and how the deal is allocated across the asset classes for tax purposes.
A $10 million asset sale with an aggressive working capital adjustment and a 20% earnout contingent on post-close performance is not the same deal as a $9 million stock sale with clean proceeds at close. The lower headline number is often the better deal. Owners who fixate on the top-line figure, and brokers who are compensated on it, tend to optimize for the wrong variable.
This is where the collaboration between your CPA, attorney, investment banker, and financial advisor actually earns its keep. The number on the letter of intent is the beginning of the negotiation, not the end.
The single most valuable conversation we can push you toward this year is with your CPA, and ideally with an advisor who understands business exits, before you ever talk to a buyer. The question is: what does my personal financial life need to look like on the other side of a sale, and what does the sale need to produce – net of tax, net of transaction costs, net of any dollars still at risk in earnouts, to get me there?
Run that backwards. The number you need on the other side dictates the structure you can accept on the way out. It also dictates whether the business is ready to be sold at all, or whether there’s another two to three years of work to do first.
Most owners who skip this backward-math and go straight to talking to buyers either accept a worse deal than they needed to, or pull out of a deal late in the process because the math didn’t actually work – a process that’s expensive, exhausting, and doesn’t leave the business in great shape for the next attempt.
The reason we keep writing about this is that most of the owners who land in our office in their early sixties, looking for help with an exit they want to execute in the next eighteen months, are five years late to the planning conversation.
Some of that lateness is still recoverable. Much of it is not.
If your kids don’t want the business, that isn’t a problem to grieve. It’s information – useful, actionable information, as long as you treat it as the start of a planning conversation rather than the end of a family one.
The planning conversation is the one where the exit you’re actually going to have gets built. And the earlier that conversation starts, the more exits you’ll have to choose from.