Comparing Employee Ownership with Other Exit Strategies: Which One is Right for Your Business?

For many business owners, the decision to step away from their company is one of the most significant they’ll ever make. Whether it’s due to retirement, a desire to pursue other ventures, or simply a change in life priorities, planning a smooth and successful exit is crucial—not just for the owner’s financial future, but for the continuity of the business and the wellbeing of its employees.

There are several succession options available, each with its own advantages and challenges. In this article, we’ll compare some of the most common exit strategies—selling to a third party, private equity buyouts, family succession, and employee ownership—to help you make an informed decision.

1. Selling to a Third Party

A trade sale involves selling your business to another company—typically a competitor, supplier, or investor. This route can be attractive for owners seeking a quick and potentially lucrative exit.

Pros:

• May offer a high upfront financial return.
• Opportunity for the business to be scaled by a larger organisation.
• Exit can often be achieved quickly, depending on negotiations.

Cons:

• Cultural changes or restructuring may lead to staff redundancies.
• Risk of the company’s identity being lost or absorbed.
• Sale process can be time-consuming and involve extensive due diligence.

2. Private Equity Buyout

Private equity firms invest in businesses with a view to growing them and eventually selling them for a profit. This option can provide capital and strategic expertise, but it also shifts the business’s focus.

Pros:

• Access to significant growth capital.
• Potentially high returns for existing shareholders.
• May retain part of the leadership team for continuity and the leadership team may be incentivised on the long term success of the business.

Cons:

• Business decisions may become heavily profit-driven.
• Pressure to meet performance targets.
• Company culture and employee experience may suffer under new ownership.

3. Family Succession

Passing the business on to a family member is a traditional route that appeals to those who want to maintain a sense of legacy.

Pros:

• Keeps the business “in the family.”
• Values and company culture can be preserved.
• May provide peace of mind for owners who want to see the business continue in familiar hands.

Cons:

• Not all family members are willing or able to take over.
• Internal family conflicts can complicate the transition.
• Financing the succession can be challenging without external support.

4. Employee Ownership

An increasingly popular option—particularly in the UK—is transitioning to an employee owned business, most commonly via an Employee Ownership Trust (EOT). In this model, a controlling stake in the business is sold to a trust on behalf of all employees.

Pros:

• Preserves the company’s culture, values, and independence.
• Engaged and motivated employees with a stake in the business’s success.
• Owners may benefit from 0% Capital Gains Tax on qualifying EOT sales and there are tax efficiencies for the employees and the Company.
• Supports long-term business continuity and legacy preservation.

Cons:

• The business must be profitable enough to finance the buyout over time.
• Transition requires planning, legal input, and strong communication.
• A new governance structure may be needed to support employee involvement.

If you’re exploring employee ownership options, it’s important to understand the legal, tax, and governance frameworks involved. A great resource to start with is the Employee Ownership Advisor, which offers guidance and support to business owners considering this route.

Choosing the Right Path Forward

The best exit strategy depends on your personal goals, the financial health of the business, and your long-term vision. For some, maximum financial return will be the deciding factor. For others, protecting the business’s legacy, securing jobs, or maintaining independence will be more important.

Employee ownership offers a compelling balance between fair value for the owner and long-term benefits for the business and its employees. It’s particularly well-suited to businesses with a strong culture, loyal workforce, and consistent profitability.

If you’re considering your succession options, it’s worth exploring employee ownership alongside more traditional routes. Seeking professional advice can help you weigh the pros and cons of each approach and identify the path that aligns best with your goals.