Selling your Business in the Midwest: What Owners Should Know

Business transitions and exit strategies

Why selling a business may look different in the Midwest

Selling a business in the Midwest can feel different than it would in larger, more active markets. Since many Midwest businesses are family or locally owned, relationships often matter more than other locations. Employees aren’t just numbers on a spreadsheet, and customers may have been with the company for decades.

Additionally, due to smaller and more locally driven markets, many Midwest businesses are staples of the local area and provide them with essential goods, services, infrastructure and/or employment.

Because of all these factors, selling a family-owned business or small Midwest business often carries a bit more weight than a business sale elsewhere. Pricing isn’t the only factor; many owners are also thinking about employees, customers and the community impact of a sale.

These priorities can shift goals from “How do I get the most money?” to “How do I protect what I’ve built?” A rushed or poorly planned business exit can lead to high employee turnover, service disruptions for customers or even business failure after the sale. Thoughtful business transition planning helps reduce those risks and in turn gives owners more control over the outcome.

When to start planning your business transition

One of the biggest mistakes business owners can make in the transition process of ownership is waiting too long. Research shows that a large number of owners expect to exit their business within the next 5 to 10 years, yet 50% still don’t have a detailed succession plan, and a third say they’re unsure what will happen to their business after they leave. 

A good rule of thumb is to start business transition planning at least three to five years before you think you might sell. Without committing to a date right away, you’ll have ample time to prepare. Exit plans don’t always play out as you intend, so extra time to plan can be essential if your exit strategies need to shift later down the road.

When it comes to exit planning, starting earlier provides you with more flexibility.

Planning early allows you to clean up financials, rely less on yourself, strengthen leadership and improve business valuation. This also protects you personally: If you’re unexpectedly forced out due to health issues, burnout or economic shifts, it often results in lower values and fewer options.

Understanding your business value

Business valuation is one of the more confusing and often misunderstood parts of selling a business, especially when it comes to small, locally owned businesses. Many owners have a number in mind, but that number is often based on emotion rather than solid math and financial reality.

Broadly speaking, a business valuation will look at how your business makes money, the market value of its assets, how predictable the income is and how risky it appears to a buyer. While there isn’t a single “correct” way to calculate this value, common valuation approaches will include asset-based methods, earnings-based methods and comparisons to similar businesses that have sold.

For many small businesses, seller’s discretionary earnings (SDE) is a starting point. SDE is one of the primary metrics for valuing small businesses, as it shows the total financial benefit that an owner-operator gets from a business annually. It’s calculated by taking net income and adding back the owner's salary, personal expenses run through the business, non-recurring costs, interest, depreciation and amortization. SDEs help buyers understand how much income the business generates for an owner and give a clear picture of the true cash flow.

From there, factors like industry trends, customer concentration, management structure and growth potential will also go into this calculation.

Valuation isn’t static. Owners who understand how their business is valued can make changes years in advance to maintain it and make the business easier to sell.

Common exit options for Midwest business owners

When you’ve decided you’re ready to start planning your business exit, there are several common strategies for smaller and local businesses. Each one comes with different upsides, tradeoffs and risks.

Selling to a third-party buyer

This is typically the most straightforward option when it comes to exiting a business, often providing immediate liquidity and the fastest turnaround for owner/operators. These agreements will sometimes include a period that the original owner/operator continues working for the business before exiting; however, this form of exit may introduce higher levels of uncertainty for employees and customers depending on the buyer’s plans and management post-acquisition.

Internal succession or employee buyout

If a small business has no family succession plan, many owners prefer an internal succession or employee buyout to keep the business in familiar hands. This not only ensures your business continues running smoothly, you’ll have the opportunity to train successors before your exit. Generally speaking, internal transitions can protect culture and jobs, but they usually require advance planning and creative financing. 

Family transition

Passing the business to family members can preserve the legacy, but it also introduces different legal, tax and leadership challenges that all require planning. Family business transitions work best when expectations are clear and planning starts early, as delayed planning is a major hindrance to these types of business transitions.

Strategic merger or acquisition

Merging with or selling to another business can allow your company to scale, share resources or stay locally rooted. While these are usually better suited for companies competing with or complementing each other in more technical industries, they can still be a strong option to consider for Midwest business owners.

No option is automatically better than another. The right choice depends on your goals, your timeline and the people involved.

Tax, financial and other considerations when selling a business

From a tax perspective, selling a business is rarely simple. The IRS treats the sale of a small business as the sale of individual assets, not a single transaction. These rules change depending on whether you sell partnership interests, corporation interests, or corporation liquidations, as well as all the other types of business sales. Different assets are taxed differently, which can significantly affect your net proceeds. It’s important to fully understand your transition from a tax perspective and how this affects selling your specific business.

How the purchase price is allocated, how the sale is structured and when the sale occurs all matter. This is why tax planning should start early, rather than after a deal is on the table.

Beyond taxes, owners should think about the financing terms, timing, employee transitions and long-term income needs that are associated with exit planning. Many owners rely on income from their business to support their lifestyle, which makes this planning even more critical.

Taking the first step towards business exit planning

Selling your business doesn’t start with a buyer—it starts with a plan.

When you understand your options, your value and your timeline, you control your situation and can plan your exit more confidently. With the right preparation, you can transition your business in a way that supports your financial future while protecting employees and community ties.

If selling your business is on the horizon, or even years away, starting the conversation now can make all the difference. When you’re ready to start planning, Associated Bank’s business banking solutions can support you through every stage of your business transition.