I’ve read countless books, periodicals, journals, etc. on transition, buying and selling businesses, alternatives, strategy, due diligence, coaching, team, preparedness, taxes and the like, been involved in both buy and sell side sales, studied back to my University days.
I’ve also spoken with quite a few SMB owners who have sold their business. In my less than scientific estimation easily 1 in 5 owners would not sell their business as they did if given a second chance. Studies indicate that 20% of SMBs that would like to sell, actually sell to outside buyers 1. There are countless advisors that offer sound advice on regulations, tax implications and the like.
Why? What went wrong?
For many SMB owners the majority of their net worth is their business. Sale of that business will likely be the biggest financial transaction of your life. That sale will be highly emotional – please trust me on this if nothing else – OK? You will need a competent AND trusted advisory team that includes external experts that do not have a vested interest in the proceeds of YOUR sale.
That team will be responsible for making sure all the prerequisites to consummating the sale including all the obvious house cleaning maters that go well beyond timely spot on financials e.g. full and complete minority equity agreements, contracts, customer and vendor histories, HR records, Human Capital assessment, incorporation documents, comparative industry sale intelligence to name but a few. No one wants to buy a mess and you won’t want to be scrambling over these details in the midst of the biggest negotiation of your life.
Each of the owners who were happy with the sale of their business began preparing for their exit long before they actually sold.
Successful exit planning starts with YOUR expectations, your musts. Typically those include: timing, amount, terms and form (cash, stock, notes) and continued involvement for you, your family, other minority shareholders, your team or not. If your expectations are close to realistically achievable your next steps would include at least two independent valuations of your company.
YOUR expectations and musts form the framework for YOUR exit. Your team should be advising you on all your options, pros and cons, and the value to you beyond outright sale to an arm’s length buyer should be carefully spelled out in plain, clear English including:
Merger – shares are exchanged and resources merged. Liquidation or payout is based principally upon the new merged company’s performance.
Buyout – by minority shareholders, employees, family members. Liquidation can occur when the sale closes or leveraged over a specified timeframe. Employee Stock Option Plans (ESOP) are an often overlooked option. If you’re closely held, have decent revenue growth and margins, a good succession plan / management team in place you are a prime candidate for an ESOP that enables: liquidation event, continued control, employee retention AND some VERY favorable tax considerations.
Liquidation – close the business and sell assets at market. Not typically the route anyone prefers however, liquidating part of your business can be a good strategy that can promote an outright sale, merger or buyout.
Everyone eventually exits their business – that’s a second point you can absolutely trust me on. Almost without exception each of the content former owners who sold had carefully planned their exit, carefully considered their team and considered all their options long before they sold. I don’t think that’s a coincidence.
1. Exiting Your Business, Protecting Your Wealth, John Leonetti