Inheritance or Internal
The first and second exit strategies involve selling to a relative or employee of the company. Traditionally, the seller and buyer enter into a contract where the revenues or profits are shared over a time period, under a Revenue/Profit Share formula, until the owner has received a certain ceiling amount of funds or royalties. The seller’s and buyer’s goals are aligned as the company’s culture does not change. The problem with this type of sale is that the company’s growth is limited. Growth capital typically is generated internally from business revenues The small company has limited access to outside capital, if any, to grow.. Its management is not usually skilled. And, the company’s market share is minimal. The seller’s return is totally dependent on the success of the company’s unskilled management over many years. Consequently, the sales price is low, the transaction’s risk is high, and the payout takes time.