For many founders, their story begins the same way: years of hard work, risk, and reinvestment to build something meaningful. Along the way, personal wealth and business value become tightly intertwined.
In the past, founders faced two choices: you either held onto the business until your children were ready to take over, or you sold it outright and your family walked away.
Today, that fork in the road no longer exists. Instead, there are multiple options that can create generational wealth and legacy or continued growth while protecting capital.
One approach, particularly for generational businesses, allows founders to achieve liquidity, reduce personal risk, and create long-term opportunity for the next generation, all at once. It’s a strategy that blends partial sale, retained ownership, and thoughtful equity transfer, often alongside a private equity (PE) partner.
The result? Founders can “take chips off the table,” remain involved, and have children step into leadership with less financial risk, while the business itself can grow faster than ever before through partner investment.
What Does “Exit” Really Mean?
One of the biggest misconceptions founders have is simple but scary: exit means leaving.
In reality, the most successful transactions rarely involve a founder disappearing the day after the sale of their business is finalized. In fact, investors often expect continued involvement from the founder. A typical structure might include:
- The founder selling a majority stake (70–85%) and retaining a meaningful minority share (15–30%)
- Staying involved operationally for several years
- Participating in a future “second sale”
This approach fundamentally changes what it means to exit your business if you want to pass it down to the next generation. Instead of a departure, it becomes a transition, allowing founders to achieve financial security for their families while staying engaged, preserving legacy, and positioning the company for accelerated growth.
The most powerful aspect of this approach: it removes the all-or-nothing pressure that often defines succession planning.
To understand how this works in practice, here’s a simplified example.
ABC Company
- Revenue: $35MM
- EBITDA: $3.5MM (10%)
- Valuation: $21MM (6x multiple)
- Ownership: 100% founder-owned
Instead of selling outright, the founder chooses a different path:
- Sells 80% of the company for $16.8MM
- Retains 20% equity
- Continues working with the business under new ownership
The private equity partner invests capital and expertise to scale the business. With investor capital investments, over the next three to four years, revenue triples to $105MM, and EBITDA grows to $10.5MM. As the EBITDA dollars rise, so does the typical EBITDA multiple at sale. The original 6x multiple for a $3.5MM EBITDA company is likely to move above 8x. We will use 8.5x for this company at $10.5MM EBITDA. The company is now valued at $89.25MM.
When the company is sold again:
- The founder’s 20% stake is now worth $17.85MM
Total outcome: $34.65MM
- $16.80MM upfront
- $17.85MM on the second sale
- Significant de-risking along the way
This “two bites of the apple” approach allows founders to convert uncertain future value into present-day liquidity, while still contributing to the future of the company.
Now consider this in the context of a generational business. In many family-owned businesses, there is an immediate and unavoidable challenge when transitioning leadership from generation to generation: the next generation typically cannot finance a buyout of the founder at full market value.
Imagine that same business worth $21MM. Even if the next generation is capable and willing, they rarely have the capital to purchase the company outright without substantial personal risk and additional cost of capital. This is where structured exits become transformational.
A Generational Exit Framework
A common approach might look like this:
- Sell a majority stake (e.g., 70–80%)
The founder receives liquidity and financial security.
- Retain a minority stake (e.g., 20–30%)
This stake can be split strategically between the founder and the next generation, or gifted to the next generation prior to the sale, with your investment bank and tax advisors working together to create the most tax-efficient plan.
- Introduce a growth partner (PE)
The investor provides capital, strategic guidance, and infrastructure to scale.
- Position the next generation in leadership
The next generation operates the business with support and accountability.
- Execute a second exit in 3–5 years
Both generations benefit from the increased enterprise value.
One of the most compelling elements of this strategy is the ability to gift a portion of the company’s equity to the next generation.
Instead of saddling the next generation with 100% ownership of a business, and all the costs and risks that come with it, the founder creates a different starting point: investors and external expertise driving growth, and equity that can increase dramatically in value as a result. This means you aren’t just giving your children money, you are giving them the chance to build something meaningful.
The next generation is still accountable for performance, able to access your knowledge and investor capital, without taking on personal debt or risking family capital to get there.
Why would founders choose this path?
- Financial Security: Many founders have the majority of their wealth tied up in the business. Waiting for a full generational handoff delays liquidity, and increases exposure to market and operational risks. A partial sale allows them to diversify assets, secure their retirement, and reduce their personal risk tied to a single company.
- Realistic Transition Constraints: Even highly capable successors often lack the capital to buy a business valued at tens of millions of dollars. Without an external partner, the transition can stall, or become financially impossible.
- Preserving Legacy: There’s a common fear that bringing in outside investors means “losing the company.” In practice, the opposite is often true.
The right partner wants management continuity, because they are generally seeking to preserve what made the business successful. They often rely on the next generation of leadership to execute growth. Rather than replacing the family, they enable it to thrive at a larger scale.
One of the most overlooked advantages of this structure is how significantly it reduces risk for the next generation.
Growing a business significantly in the span of just a few years requires substantial capital investment, often millions of dollars. Without external funding, that capital typically comes directly from the owner’s balance sheet. This creates a dangerous dynamic, requiring the founder to risk accumulated wealth, the next generation to inherit financial pressure, and constraining their growth decisions.
By contrast, an investor-backed model shifts the financial burden, with the investor funding expansion, the next generation focusing on execution, and the family retaining a legacy while reducing risk.
The Emotional Reality of Letting Go
For founders, identity and business are often inseparable, so exit planning is an emotional process. Like a professional athlete preparing to go on the field for the last time, founders often fear that after decades of leadership, they will lose a part of themselves when they step away from their business.
At the same time, many worry about whether their children will be able to sustain the business, whether the company’s legacy will endure, and what their own role will be afterward.
A structured exit helps address these concerns by creating continuity. Founders can choose to stay involved operationally or strategically, serve on the board, mentor the next generation, and watch the business grow beyond what was previously possible.
When structured this way, founders can exit on their own terms, continuing to contribute and lead in the next chapter for the company.
Eric G. Woods is a Principal at Heritage Capital Group, where he advises middle-market companies on mergers and acquisitions and provides strategic advisory support to drive revenue growth, improve operating performance, and build long-term enterprise value. With more than 30 years of leadership and advisory experience, Eric helps organizations navigate growth, transformation, and value creation across every stage of their evolution.
