Selling a company can be one of the most—if not the most important financial transactions of a business owner’s life. It can determine whether someone has enough to retire and influence the financial security of their descendants.

However, selling a business is much more than a financial transaction. It can be a deeply personal decision, with important emotional and social implications. Many business owners, even if they’re reluctant to admit it, see their business as a core part of their identity. It’s not uncommon for business owners to be deeply concerned with how the next owner impacts the business’ reputation in the community, or with how they interact with employees, customers, and suppliers.

Ultimately, each business owner will need to balance these considerations when deciding who to sell to and when. While there isn’t a right or wrong decision, business owners deserve to know all their options, including transitioning ownership to employees.

When it comes time to sell a business, business owners will have to consider both external and internal options.

External options are generally the most common because a new buyer can bring capital and new operational capabilities to the business. Within this category, there are strategic buyers and financial buyers.

Strategic buyers are typically another business in a similar or adjacent industry. Strategic acquirers may pay a premium to increase competitiveness through scale, expand into key geographies or product categories, or unlock synergies by combining functions such as sales, procurement, manufacturing, and back office. Synergies can support higher headline valuations and more favorable terms, such as cash at close or reduced contingent consideration.

Financial buyers are a diverse category of investors acquiring standalone businesses. Some play an active operational role and may replace or augment the management team; others focus on governance and support independent management. Certain financial buyers invest their own capital, such as individuals or family offices, while others are professional fund managers—such as private equity firms—who raise capital from third‑party limited partners. Though some financial buyers may look to buy and hold a business long term, while others, particularly fund managers like private equity firms, target exits within a five-to-seven‑year horizon.

External options are typically suited to owners seeking to maximize value and exit in a relatively short period. To optimize outcomes, it’s important to consider running a formal competitive auction process with multiple bidders. A well‑run process tests the market for valuation, improves negotiating leverage, clarifies terms (representations and warranties, working capital adjustments, earnouts) and reduces the risk of a transaction not closing compared with negotiating with a single buyer.

Internal options, though less common, are tried and tested. Historically, two approaches dominate: sales to family members or to management (a management buyout, or MBO).

There are typically two issues to navigate when considering an internal sale. First is the level of interest and qualification of the buyers. Family members or management may not be willing or ready to take over, and management teams often express concerns about personal financial risk and the demands of ownership.

Second is access to capital and its impact on the timeline of the exit. While internal buyers may draw on personal savings, take out personal loans, or leverage the business’ balance sheet, they often have less capital available. As a result, selling shareholders are often asked to provide a vendor, or seller, note loan from the sellers to the business or buyers to be repaid over time. Larger vendor notes and debt burdens can constrain investment in growth and create refinancing risk, which is why many internal sales become multiyear transitions rather than single close‑and‑exit events.

Internal sales work best when continuity of leadership is paramount, the next generation or the management team is both motivated and capable, and shareholders have flexibility on their exit timeline.

Another option is broad-based employee ownership. There are many models for broad-based employee ownership with a long history in North America. A leading solution when it comes to succession, however, involves the use of a trust, similar to a family trust. In the U.S. that is the employee stock ownership plan trust, or ESOP, which has formally existed since 1974. Today it is used by over [6,500 companies with 15 million workers who hold $2 trillion in assets]. Canada passed legislation similar to the U.S. ESOP in August 2024, unlocking a new opportunity to sell to an employee ownership trust, or EOT.

Many business owners choose this alternative as a way to protect their legacy by ensuring the company remains independent and rooted in their existing community. In addition, it’s a solution that can work for business owners concerned with confidentiality, or where they need certainty that a transaction will close. Research has shown that broad-based employee ownership can have important benefits to a broad range of stakeholders, including:

• 

  Life-changing financial outcomes for workers – research shows median net worth of employee owners is 92% higher than peers at non-employee- owned businesses

• 

  Increased job security, especially in downturns – studies have found that employee- owned businesses were less likely to go bankrupt or lay off employees during multiple economic periods

• 

  Improved company performance – research indicates that employee-owned businesses grow faster, have higher productivity and are more profitable

These structures are similar to an MBO, but with two important differences. First, they are designed to benefit all employees, rather than just select members of management. That doesn’t mean they necessarily benefit all employees equally; instead, it’s common for these plans to offer a benefit pro rata based on compensation or both compensation and tenure. Second, both structures benefit from tax incentives that can help increase the attractiveness of the sale relative to traditional internal sales.

Ultimately, pursuing an ESOP in the U.S. or an EOT in Canada still require an interested and qualified management team to run the daily operations and a business owner comfortable with a longer-term exit. However, these structures and the associated tax incentives can make it more viable for business owners who prioritize protecting their legacy and the impact on employees.

More information on the employee solutions available can be found in this BMO article.

For many owners, it’s a challenge to accept the uncomfortable reality that the sale of their business is inevitable. Ultimately, their choice is whether the sale will be voluntary—where they choose the buyer and terms—or involuntary due to health or other external factors. But this inevitability is also an exciting opportunity to determine the future for the company and its stakeholders. By preparing early and understanding the options available, business owners can achieve the best outcome for themselves, their families and their stakeholders.