5 Ways to Exit your Business
Your business is a reflection of your dreams and aspirations. It’s a work of art that’s an expression of who you are and what you are about. It devours your time and creativity so you can’t do other things you would at times prefer to do. So what are you going to do with your business when your time and motivations change? Whether you like it or not, that day will come. Whether you like it or not, you can either plan and manage your exit or let someone else do that for you. If you would prefer to plan the exit from your business here are the four main and obvious options to you.
1. Family ownership
A lot of businesses are a family affair; whether the members of the family like it or not. It’s also one of the simplest forms of business succession planning. If the business is managed on a daily basis by one or both of the parents in a family, the children will generally be involved if they are old enough and even if it is only at a basic level. A family business also permeates the family with the many breakfast and dinner conversations and juggling to attend or not attend business meetings. Transitioning the business from one generation to the next can be one of the most fulfilling and rewarding both financially and emotionally if everyone is on board. If this is an option for your business, learn and understand the variables as it may sound counterintuitive, but selling the business to the next generation may eliminate legal and tax uncertainties that can occur with gifting the business.
2. Key employees
Many business owners are in deep gratitude to the employees that help build and run the business on a day to day basis. To show that gratitude, selling the business to the employees or maybe one or two key employees makes good business sense.
Selling the business to key employees comes with many positives. The employees know the business, other employees, suppliers and customers. They should also understand financial performance of the business including bank accounts, machinery and equipment the company owns, the status of the accounts receivable and accounts payable. Any ownership transition should be smooth and relatively simple.
Selling the business to key employees comes with challenges. The first and obvious problem is that ‘employees’, for good reasons are called ‘employees’ and not ‘owners.’ There is a big difference to owning a business as opposed to working in it. The owner, by definition, is required to make every major decision whether they like it or not. A lot of employees like making the small decisions but have no interest in making the bigger and therefore complicated and more important decisions.
Another challenge for an employee is getting the money to come up with a deposit to buy the business. This is a big deal. If they are comfortable being an employee they will probably want to stay inside their comfort zone when owning and operating the business; but that’s not how things get done. Additionally, if they don’t have the drive and risk taking appetite to buy the business; does that make them a good option to own and operate your business?
An obvious solution is for the business seller to provide the finance for the employee to get a loan and buy the business. This may be a good solution for buyer and seller but the seller needs to be aware that if the buyer defaults on the loan, the business may come back to the seller and not be in the same condition when the buyer gained ownership.
Finding an investor to buy the business sounds like a good option. However, investors are by definition those that want to invest their money and get a return on their money; not own and operate the business. Additionally, investors prefer to invest in a public company so they quickly and easily sell their interest and move to another opportunity. Almost without exception, privately held companies are owned and operated for the benefit of the owner and their families making them very unattractive for investors.
A great but tricky option is to sell your business to a competitor. It’s a great option because your competitor probably knows your business. They will also know your suppliers, types of customer and the industry you are in. Part of the challenge is to find a competitor who has cash to provide a downpayment, plus the right credit score and credit report to qualify for a business loan; unless as the seller you are willing to carry a lot of seller finance.
Part of the down side is that if you carry the seller finance and the buyer defaults, it can be incredibly difficult for you to get back your business as it will be well and truly interwoven with their previous operation. The other difficult part is in the selling process. The buyer will want to know everything about your business. It therefore becomes challenging with how much and when you disclose to be sure the buyer will actually close the sale rather than simply take all the information that you shared with them.
As I mentioned above, there are four main options to exit your business. There is also a fifth option which is to do absolutely nothing and let someone take care of it for you; which does not seem like a good option at all.
Are you thinking about selling your business and move to your next challenge? Would you like to know the value of your business? If you would like more information please visit my webpage Business valuation. For more immediate help you are welcome to send an email to Andrew Rogerson or give me a call on 916 570-2674.