Managing Debt During Your Business Exit
Exiting your business is a significant milestone—but it also comes with complex financial decisions, particularly around existing debt. Whether your business holds loans, lines of credit, or vendor obligations, understanding how these liabilities will be managed during a transition is necessary for a smooth exit.
What Happens to Business Debt at Exit?
In most cases, debt does not simply disappear when you sell or transition your business. Instead, how the debt is managed depends on the structure of the transaction:
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Asset Sale – The seller typically pays off the business debt before the sale closes. The buyer purchases assets free of liabilities.
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Stock Sale – The buyer assumes ownership of the company, including its debts and liabilities, unless otherwise negotiated.
Debt Management Strategies
To avoid surprises, business owners often take proactive steps, such as:
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Paying down or restructuring debt ahead of negotiations.
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Refinancing loans to improve terms and strengthen the company’s financial profile.
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Negotiating with buyers about whether debt will be assumed, refinanced, or paid off as part of the deal.
Minimizing Risk During Transition
The best approach depends on your exit timeline, financial position, and buyer’s expectations. A few risk-reducing strategies include:
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Separating personal guarantees from business debt well before selling.
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Engaging advisors early—including financial, legal, and tax professionals—to help position the business favorably.
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Being transparent with buyers about the company’s debt structure helps build trust and streamline negotiations.
The Bottom Line
Your exit strategy should not only maximize value but also ensure that debt is addressed in a way that protects your personal and financial interests. With thoughtful planning and the right professional guidance, you can transition out of your business while minimizing risk and setting up the next owner for success.
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This article was written with the aid of artificial intelligence and reviewed for accuracy and clarity.