Selling your business to an outside buyer is only one of several options for a successful exit. There are also many factors that determine the salability of your business – and unless you liquidate, your exit will include a “sale” of some sort.
These are polite and professional ways of telling you to look before you leap! Exiting is much more than a transaction; it is a life milestone and blueprint for your future. Take a step back and assess every aspect of your exit systematically, from the sale price to the buyer, to the time of sale. Here’s a brief walkthrough of how Exit Consulting Group can help you in that process.
Valuating Your Business from a Broker’s Perspective
“How much is my business worth?”
It’s the first question every business owner asks, and one that hinges largely on how ready the owner is to exit. By “ready,” I’m referring to having the proper systems, processes and personnel in place to allow a new owner to come in and be successful.
Oftentimes, an owner assumes the value of their business to be X, when it’s actually Y—and unfortunately, X is almost always higher than Y. A broker’s opinion of value (BOV) can help you gain an objective understanding of what your business would be worth on the market today based on the current state of your business.
We not only look at your business’ readiness for sale, but we also factor in your personal goals and market conditions, i.e. how available is capital for the purchase or industry specific factors. We help you evaluate when is the right time and what is the best way to transition your business based on these factors.
Types of Buyers
“Who will buy my business?”
This question, too, has more legwork to its answer than many owners realize. We’re not just looking for a buyer; we’re looking for the right buyer. That person or those people could potentially be any of the following.
It’s common for an owner to sell their business to an individual buyer—this is typically someone looking to buy a business under a $5 million sale price, for which they will likely borrow some portion of the funds required.
If your business is primed for growth, however, a private equity group might be a better match. These buyers will look to infuse significant funds to take the business to the next level. You might also consider what we call a strategic buyer—a company within your industry that is looking to branch out or expand by acquiring other entities.
An ESOP (employee stock ownership plan) can enable you to reward your employees by selling the business to them. Instead of an individual or an entity buying the business, the ESOP acts as a trust in acquiring the stock or assets of the business. The trust then hires a third-party trustee to manage the trust on behalf of the employees, who are the beneficiaries of the ESOP. While an ESOP is a fantastic option for some owners, it’s not for everyone. Learn more about ESOPs in this article.
If you have a handful of specific employees to whom you want to sell the business—e.g. managers or partners—you do not need to set up an ESOP and can instead arrange a much simpler management buyout (MBO).
A family business is a beautiful thing, especially when successfully passed down through generations. That said, you must understand the challenges of exiting a family business, which include setting expectations, the bittersweet nature of the exit, and not meddling after the exit.
The Truth About Liquidation
Liquidating is not a failure.
I repeat, liquidating is not a failure.
There are many instances in which it makes more sense for an owner to do a “planned liquidation”, where you run the business for a few years, take out all the profits that you can during that period, and then wind the business down and sell off the remaining assets. This can be a great option if your business does not have the salability to fetch a desirable enough sales price to meet your goals now, but the profits over time would satisfy your financial needs.
Get a Full Exit Assessment
These factors barely scrape the surface of an ECG exit assessment. We will help you evaluate your business and your exit through a Business Readiness Score consisting of eight categories that combine to help identify the exit strategy that is right for you. Contact us to take the first step toward a rewarding and fulfilling exit.