It’s never too early to start planning the sale of a business. It’s not uncommon, for example, to design an exit strategy while planning a start-up.
More planning time allows you to consider some of the alternatives to an outright sale, says Simon Dalgarno, executive director of Leadenhall, a firm that specialises in business valuations and transactions.
Importantly, he says don’t make the mistake of accepting the first offer without exploring the market for other potential purchasers and sale options.
Your options to exit the business can include:
1. Management buyout (MBO)
Managers and executives are given the opportunity to purchase a controlling interest in the business (usually with the help of vendor finance).
If your company owns the property from which it operates, it probably has at least two businesses – a property and an operating business. Each will have different rate-of-return requirements, different degrees of risk and different potential purchasers. Value might be maximised by considering the sale of both parts separately or selling the operating company, but retaining the property for income.
3. Selling a minority interest or a partial sale
This works well if the vendor and buyer are looking for a staged transfer of ownership.
4. ‘Milking the cow’
Allows you to exit the business operationally, but not financially. The business runs on ‘autopilot’ and distributes a benefit stream (in a tax-effective way) to the owners.
5. Private equity
Private equity may support a MBO or offer a staged exit, particularly where there are amalgamation and rationalisation possibilities in an industry.
6. Initial public offering (IPO)
Can be relatively expensive, but can provide liquidity to owners. Your business needs to be large enough and have an appropriate governance structure and a ‘good growth story’ to attract broker coverage and sustain the share price.
If a buyer can’t be found, you may save time, money and stress by taking action earlier rather than later to wind it up by selling the assets.
Dalgarno says it’s important to work out exactly what you want from the sale.
"It helps if you can define what ‘success’ is. Retirement is not the same as success. For many owners, complete retirement is the last thing they want," he says.
"It is also vital to ensure the business continues to be managed efficiently and profitably while you are in the process of selling it. This is particularly critical during the due-diligence phase, where the business is placed under intense scrutiny and the demands on the owner can be considerable."
When it comes to negotiations, don’t handle the task on your own, advises Dalgarno.
"Private business owners are often very close to their businesses and negotiations are better undertaken dispassionately by experienced external advisers," he says.
This is an edited extract of an article that first appeared in Company Director magazine.
In other words:
- Selling a business successfully usually means careful planning and preparation
- Some of the options to an outright sale may produce a better result
- Don’t forget to keep the business running smoothly during the sale process
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