Business Exit Strategies and Options: The Five Routes Out of an Owner-Operated Company

Business exit strategies reduce to five routes for a company the owner still works in: sell to an outside buyer, sell to a partner or to the management team, transfer the business to family, sell it to employees through an ESOP, or close it and sell the assets. Which of them are actually open to you is decided mainly by size. BizBuySell recorded 2,117 closed small-business sales reported to it by brokers in the second quarter of 2026, with a median sale price of $349,250 on median revenue of $692,087. A business of that size is not going to a public market, and the rules that shape its sale are the IRS’s and, where the buyer borrows, the SBA lender’s.

The short version: the choice turns on who the buyer is, and each of the five routes has published rules that decide whether it is available to you at all.

Everything below states a rule and names the body that publishes it. None of it is tax or legal advice about your business, and the last section says which professional to put each question to.

The five routes at a glance

Going public belongs in none of these rows. An initial public offering is not an available exit for a business selling at the medians above, and nothing in this article is written with one in mind.

Selling to a third party

What the published deal data actually says

Two sources publish current figures, and they measure different things.

The BizBuySell Insight Report, Q2 2026 covers closed transactions that brokers reported to BizBuySell voluntarily. For that quarter it recorded 2,117 sales with a total enterprise value of $1.8 billion, a median sale price of $349,250, median revenue of $692,087, median cash flow of $155,921, a median revenue multiple of 0.7 and a median cash-flow multiple of 2.7. BizBuySell describes its method as analyzing sales and listing prices across roughly 50,000 businesses for sale and recently sold, with closed transactions “reported to BizBuySell.com on a voluntary basis by business brokers nationwide.”

Read those numbers for what they are. They are voluntarily reported closed deals from one marketplace, not a census and not an audit, “cash flow” is the marketplace’s own seller-reported field, and the 2.7 multiple is a median across every industry and every size of business. It is the wrong number to hold up against any single company.

The IBBA and M&A Source Market Pulse, Q2 2026 is different again: a survey of advisers about the deals they saw, published as a free highlights one-pager while the full executive summary goes only to survey participants. Its median multiples by purchase-price band:

The metric changes partway up the table, and the report says why in its own footnote: deals from $500,000 to $2 million are quoted as a multiple of seller’s discretionary earnings, and deals from $2 million to $50 million as a multiple of EBITDA. Below the switch the buyer is buying a job as well as a business, so one owner’s pay is added back. Above it the buyer will hire a manager, and that manager’s salary is a real cost. How to value a small business works through what each metric includes.

On how much of the price arrives at closing, the same Q2 2026 highlights report advisers seeing cash at close of 88 percent of consideration under $500,000, 92 percent from $500,000 to $1 million, 91 percent from $1 million to $2 million, 84 percent from $2 million to $5 million and 83 percent from $5 million to $50 million. The remainder is seller financing, earn-outs and retained equity combined.

What the lender requires, and why it decides the deal

Most sales at this size are financed, which means the SBA’s Standard Operating Procedure is a practical constraint on price. SOP 50 10 8.1 takes effect on October 1, 2026 and splits change-of-ownership deals into four categories. A sale to a buyer who was not previously an owner or employee is an Initial Acquisition, which the SOP calls “the default category for 7(a) changes of ownership.” A purchase by another operating business is a Business Expansion.

Three provisions matter to a seller:

• The valuation is the lender’s, not yours. The SOP requires that “the business valuation must be requested by and prepared for the Lender. The Lender may not use a business valuation prepared for the Applicant or the seller.”
• The valuation caps the financed price. “The business valuation must support the Purchase Price … regardless of how the debt is structured. If the amount paid for the business exceeds the business valuation, the difference must be made up by equity.”
• From October 1, 2026 a large deal needs a quality of earnings report. Where the purchase price is $3 million or more on a Business Expansion or Initial Acquisition, the lender must obtain a quality of earnings report in addition to the valuation, measured “before the application of buyer equity, seller debt, or other financing sources.”

The lender also has to see a minimum historical debt service coverage ratio, defined as EBITDA divided by combined post-transaction debt service: 1.25 to 1 on an Initial Acquisition and 1.15 to 1 on a Business Expansion.

How to sell a small business covers the sale process itself, and exit planning financial considerations covers the numbers a buyer works through.

Selling to a partner or to your management team

The SBA gives this route its own category, Owner Buyout, defined as “a change of ownership transaction that modifies the ownership structure of the Applicant business and does not involve the acquisition of another entity or asset. At least one member of original ownership must remain in place following the transaction and guarantee the loan, regardless of the percentage of ownership post-sale.”

Inside that definition sit the two sub-types owners usually mean. An existing owner buyout is where “one or more current owners are purchasing the entire interest of another current owner(s), resulting in 100% ownership of the business by the remaining owner(s)”, or where the company itself redeems the departing owner’s interest to the same effect. A partial change of owner funds part of one or more owners’ interest while at least one original owner stays in and guarantees the loan.

The limit that catches management buyouts is this one, verbatim from the SOP: “For all Owner Buyout transactions, individuals not currently employed by the business may only acquire less than 50% of the total equity and may not become the largest direct or indirect shareholder.” Indirect interests held through holding companies, trusts or partnerships are aggregated with direct ones. A deal that fails that test is processed as an Initial Acquisition instead, with the stricter equity rules that go with it.

Two features make this route easier to finance than a sale to an outsider. On an Owner Buyout the lender may reduce or eliminate the 10 percent equity injection where the borrower has enough liquidity and working capital, which it may not do on an Initial Acquisition. And Owner Buyout transactions are exempt from the new quality of earnings requirement at $3 million.

Where two or more owners are involved, the terms are usually already written down in a buy-sell agreement, and how that agreement is funded now carries an estate-tax consequence the Supreme Court settled in 2024. Exit planning for partnerships covers the agreement itself, and the exit planning checklist covers when to have it reviewed.

Transferring the business to family

Family succession moves the central question from price to transfer tax, because the price is often deliberately below market. The 2026 figures come from Rev. Proc. 2025-32:

The headline point is what did not happen. The scheduled 2026 sunset that would have cut the basic exclusion roughly in half was superseded: the revenue procedure records that the act it calls the OBBBA “amends § 2010(c)(3) by increasing the basic exclusion amount to $15,000,000 for calendar year 2026”, with the generation-skipping exemption matching and inflation indexing resuming for 2027. Any article still telling owners to transfer shares before the exemption halves in 2026 is describing a rule that was repealed.

There is also a deferral provision written for exactly this situation. IRC section 6166 lets an executor elect to pay estate tax in installments where “the value of an interest in a closely held business … exceeds 35 percent of the adjusted gross estate”, in “2 or more (but not exceeding 10) equal installments”, with the first due within five years of the normal payment date and a reduced interest rate on the portion described in section 6601(j). Whether any particular estate qualifies is a question for that estate’s own attorney and CPA; the rule is stated here, not applied.

A transfer to family still needs a defensible value, because the gift or the estate return has to carry one. Exit planning for family-owned businesses covers the succession side, and how to value a small business covers the engagement you are buying.

Selling to employees through an ESOP

The National Center for Employee Ownership compiles ESOP counts from Form 5500 filings to the US Department of Labor. Its figures for plan year 2023, published in January 2026:

NCEO notes that Form 5500 filings are due seven months after the plan year ends, or nine and a half months with an extension, so there is a lag of up to two years before the data is public. These are 2023 numbers published in 2026.

NCEO describes the mechanism plainly: “An ESOP is a type of retirement plan, similar to a 401(k) plan, that invests primarily in company stock and holds its assets in a trust for employees”, and “ESOP participants (employees) accrue shares in the plan over time and are paid out by having their shares bought back, typically after they leave the company.” That buyback obligation is a permanent feature of the route rather than a closing cost.

For the selling owner, the provision that makes an ESOP worth considering is IRC section 1042, which allows gain on a sale of qualified securities to be deferred where the seller reinvests in qualified replacement property. The statute sets the conditions:

• The buyer must be an employee stock ownership plan as defined in section 4975(e)(7), or an eligible worker-owned cooperative.
• The plan must own at least 30 percent of each class of outstanding stock, or of the total value of all outstanding stock, immediately after the sale.
• The seller’s holding period in the securities must be at least three years at the time of sale.
• The replacement property must be bought in the window beginning three months before the sale and ending 12 months after it, and must be securities issued by a domestic operating corporation meeting the statute’s tests.
• For sales on or after January 1, 2028, section 1042(h) limits an S corporation seller’s election to “not more than 10 percent of the amount realized on such sale.”

Two different thresholds are easy to confuse. Section 1042 needs 30 percent. The SBA will only finance an ESOP transaction where the trust is “purchasing a controlling interest (51% or more) in the employer small business”. In exchange, the SBA exempts those loans from the equity injection requirement and from the quality of earnings requirement, and allows transaction costs to be financed “but not the costs associated with setting up the trust.”

Closing the business and selling the assets

Liquidation is the route for a business whose value walks out with the owner, and it is a filing exercise more than a negotiation. The IRS sets out six steps on its closing-a-business page: file a final return and related forms, take care of employees and their employment tax filings and W-2s, pay the tax owed, report payments of $600 or more to contract workers, cancel the EIN by letter giving the business name, EIN, address and reason for closing, and keep records. Employment tax records are kept at least four years, and property records until the statute of limitations expires.

The forms differ by entity. A sole proprietor files Schedule C, with Form 4797 for property sales and Schedule SE where self-employment tax applies. A partnership files Form 1065 with the final return box checked. A corporation files Form 966 for a corporate dissolution or liquidation, plus Form 1120 or 1120-S with the final return box checked. Where a group of assets making up a trade or business changes hands, Form 8594 comes into it as well, and its instructions are explicit that “both the purchaser and seller must file Form 8594 and attach it to their income tax returns.”

The SBA’s own closing guidance adds the non-tax steps: file dissolution documents, cancel registrations, permits and licenses, comply with employment law, settle financial obligations, and consult “your lawyer and accountant” before terminating a lease, selling equipment or disconnecting utilities.

Who to bring in, and when

Four professionals do different jobs here and they are not substitutes. A CPA gets the financial statements to the level a buyer’s lender will read and handles the tax reporting of whichever route you take. A credentialed business appraiser produces the valuation, and the credential has a hard consequence: for a 7(a) change of ownership the SBA will accept a valuation only from an accredited “Qualified Source”, which it lists as the ASA, CBA, ABV, CVA or BCA, independent of the loan production function. A Certified Exit Planning Advisor is not on that list, so a CEPA-prepared valuation will not satisfy an SBA lender unless that person also holds one of the five. An attorney drafts or reviews the sale agreement, the buy-sell agreement and the dissolution documents; the SBA’s own guidance says the sales agreement should be reviewed by one. A broker or M&A intermediary runs the sale process, and most are exempt from SEC broker-dealer registration under 15 U.S.C. section 78o(b)(13) where the target has EBITDA under $25,000,000 or gross revenues under $250,000,000, figures the statute indexes every five years. Broker fees are negotiated and no fee schedule is published by the trade body, so ask any broker for their fee schedule and their minimum fee in writing before signing a listing agreement. Our directory lists CPA firms by state and city, and where the gap is forward-looking reporting rather than compliance, fractional CFO work is the better description of the hire.

Frequently Asked Questions

Sources

14 links

• IRS: closing a business
• IRS: sale of a business
• IRS: Instructions for Form 8594, Asset Acquisition Statement Under Section 1060
• IRS Revenue Procedure 2025-32, inflation-adjusted figures for 2026
• 26 U.S.C. section 1042, sales of stock to employee stock ownership plans
• 26 U.S.C. section 6166, installment payment of estate tax
• 15 U.S.C. section 78o, registration exemption for merger and acquisition brokers
• SBA SOP 50 10 8.1, effective October 1, 2026
• SBA: close or sell your business
• National Center for Employee Ownership: ESOPs by the numbers
• National Center for Employee Ownership: what is employee ownership
• BizBuySell Insight Report, Q2 2026
• IBBA and M&A Source Market Pulse, Q2 2026 highlights
• IBBA resource center glossary