Business for Sell

Now that I have your attention, insert "Business" in place of "Lover". Some may take issue with such an affectionate reference to your business; however, in my 25 years of being involved in helping people buy and sell their business, I have been told by many wives that they don't believe their husbands will ever actually leave "their baby". My female clients aren't so emotionally tied to their business and are able to make the transition much easier than their male counterparts. Some say women are better at forging friendships and relationships outside the business, whereas many men are emotionally and mentally more singularly tied to their careers. Okay, a psychologist I'm not, so let's get on with how to leave your business.

There are really only four ways to leave your business.

1. Transfer business ownership to your children or other family members. Unfortunately, many children do not want to become involved in the family business or may not be capable of operating the business successfully after the sale. There is a "plethora" of family succession issues to be dealt with; however, the biggest issue is money. Most business owners have the majority of their assets tied up in their business, so a sale to family members usually means the Seller does most of the financing of the purchase price because their children haven't accumulated enough cash or other assets for the sale themselves. Usually it is the owner who has established the banking relationship and through his experience, successes and probably personal assets, the bank has been a willing lender over the years. But with the founder out of the business, they may not be as comfortable with the same financial arrangements for the siblings in a sale.

1. Sell the business to your key employee or manager. As with Number One, not enough money and may not have the skills to run the entire business. The biggest risk in my view is two-fold. One, the loss of confidentiality. Everyone who works for you will know your business is for sale. Two, you and your employees are put into an adversarial relationship during the negotiating process of the sale. If the deal fails to come together, it can cause a strained relationship between you. Some employees may leave the business as a result and others will blame you. Employees may also expect you to sell to them for less than market value. They will want other concessions such as owner financing or extra time to put the sale together.

A sale to employees is an option you should consider but it's risky. You won't receive top dollar for the business, and you lose confidentiality.

1. Sell your business to an outsider. The sale of the business to an outsider requires the utmost confidentiality. Beware when dealing with a competitor (especially in your own business market). You can, however, maximize value with a business competitor who may be involved in an industry roll-up. Get the highest price and the most cash possible and go on your way when dealing with competitors.

If you can locate a "strategic" buyer for the sale, you can maximize the value of your business and put more cash in your pocket at closing. Depending on the size of your business (sales and/or profits) a Professional Investment Group (PIG) may be your best buyer. Our firm consistently communicates with five hundred or so PIGs. Many have put together in excess of 100 million dollars for business acquisitions. They are very active and very experienced. For most Sellers, this is their first time at the sale of their business. Don't "poor boy" this one. Find a good business intermediary. There are no "overs" in this game and now is not the time to leave money on the table. Done right, this is your opportunity to cash in on all that hard work.

1. Liquidate your business. This is only a last resort and usually the worst option. A business owner who has a high asset value in his business, but low cash flow, will often justify a high price for the business based on a market valuation of those assets. But, if those assets aren't producing a good cash flow, they don't hold a lot of value at sale.

When to start working on your Exit Plan … Many advisors say "you should start planning to exit your business the day you start it or buy it". You certainly don't want to plan on misfortune, but it's never too early to plan on how to sell the business. If you have no children or other relative that has any interest in going into the business, your options are now down to three. Most small and mid-size businesses don't have the management depth that would provide a successor. Furthermore, liquidation doesn't seem attractive. That leaves attempting to find an outsider to buy the business as the exit sale plan.

The time to plan for sale is indeed the day you begin business operations. You can't predict misfortune, but you can plan for it.

Unfortunately, most sellers wait until they wake up one morning, don't want to go to their business, drive around the block several times, working up the courage to begin the day. It's often called "burn-out" and if it is an ongoing problem, it probably means it's time to sell. Other reasons for wanting to leave is family pressure to start "taking it easy" or to move closer to the grandkids.

Every business owner wants as much money as possible when the decision to sell is made. If you haven't even thought of exiting your business, or selling it, now is the time to begin a pre-exit or pre-sale strategy.