There are a host of options available when selling a company, and given the current economic environment, there has never been a better time to do so. With interest rates at all time lows, real-estate leases barely covering costs, and passive income now being taxed at unprecedented levels, investors are looking for new opportunities to place funds in the market that will show strong yields over a defined period.
It is also important to realize that with the Baby-Boomer generation now at retirement, there has never been more businesses up for sale. Whether you are selling a product or a business, carefully positioning your product in the market is critical to its success. It has to be attractive.
The size of your company will often help identify the potential buyer. For instance, if you have a $500,000 company, attracting a $1 billion-dollar investment fund will, for obvious reasons, never occur. The spread is simply too wide. You also must be realistic with respect to the valuation. This is usually determined by past bottom line success and potential growth. Simply stated, an unprofitable company has very little value. Exit-Plan™ will deliver the ‘tough love reality check’ while identifying the fixes that will result in attracting the right buyer.
TYPES OF BUYERS
Family take over
- Some business owners plan to pass their company along to family members. Done right, you will have put aside a solid nest-egg from which to comfortably retire while maintaining your lifestyle. Keep in mind that you were the entrepreneur that drove your business and passing it along to a family member is no guarantee that they will thrive following your legacy. You need the right person to take over the reigns.
Selling to staff
- This option is one that assumes you have put together a great team and the team will either buy you out today for the full value or pay you off over years to come. The challenge here usually ends up being financial whereby the new management team may not necessarily achieve their proclaimed goals. Having a well put together purchase agreement can protect you and it can also put you right back on the driver’s seat should the management team fall short of their goals.
- A strategic buyer is a company that is often in the same space or wants to expand into the space you are in by acquisition as this is the fastest way to grow a corporation. For instance, if you are manufacturing automobile hub caps, a tire rim manufacturer may find your company attractive. Smaller strategic buyers will often partner with investor groups to help them finance the deal. The benefit with strategic buyers is that they are familiar with the industry and therefore will often allow you to exit in short order.
- Financial buyers are usually ‘face-plates’ that have a variety of investors to draw from. In other words, they combine banks, investment funds, wealthy individuals and some of their own money to put together these deals. As the ‘play’ here is purely financial, they usually want you to stay on board for a pre-determined period so that they in turn can bring in their own management team. These deals usually involve various payment tranches whereby you would get some money upon signing, more at a future date, and then more later again based on achieving milestones. These deals can put the most in your pocket but require you to stay on and deliver promises. For some owners, working for someone else after being the boss can be a difficult transition.