COVENANT BUSINESS PLANNING SOLUTIONS

Exit Option 7: Assume Passive Ownership

Another exit route that an owner can choose is to keep the business while assuming the role of a passive investor. This route attracts owners who wish to:

  • Maintain control;
  • Become gradually (or rapidly) less active in the company;
  • Preserve company culture and mission;
  • Minimize risk (or owners perceive risk to be low); and
  • Maintain or even increase their cash flow with less risk of income loss.

The first four advantages listed above are the same as those listed in other exit routes. The last, however, deserves comment. In some cases, especially in businesses with a value of less than $5 million, owners feel they are at less risk keeping their businesses than selling them when a third-party buyer makes a major part of the purchase price subject to a promissory note or some type of “earn-out.”

The disadvantages to this exit route are fairly obvious. The owner:

  1. Never permanently leaves the business
  2. Receives little or no cash when he leaves active employment
  3. Is delayed on her journey to a significant post-business life and
  4. Continues to experience risk associated with ownership

In our next blog, we’ll highlight the final Exit Option – Liquidation.