So you’ve been running your business for years, and you’re ready to retire or move on to the next project. How do you cash out your stake in your business?
Selling a business is more complicated than selling a car or a house. The route you take can affect both your profit and the outcome for your employees. It’s important to learn as much as you can about the process and make an exit plan before you need it.
On April 29, Advice Chaser will host a webinar on the topic of “Exit Planning.” In the meantime, let’s talk about a few options when it comes to selling your business.
Selling Your Business to Your Successor
One popular option for getting out of a business is to choose a successor and sell the business to them. You can choose a family member or trusted employee and offer them the opportunity to buy the business from you. When you sell the business to its own management-level employees, it’s called a management buyout.
As an advantage, the buyer will already know about your business and hopefully share your vision. If you choose your successor carefully, you can rest assured your business will be in good hands.
The disadvantage is that the buyer is unlikely to have the money on hand to pay cash. Seller financing is common: the buyer pays you over time, giving you a regular cash flow instead of a lump sum. Another disadvantage is the potential for disagreements with your successor. Once you’ve handed over the reins, you’ll have to accept when your successor makes different decisions than you would have made.
Selling to an Outside Buyer
If you want a higher selling price or an immediate lump sum, you may choose to sell to an outside buyer. This will require an accurate business valuation—you want to know what your business is worth to a buyer.
As a business owner, your passion for your business has served you well. But the selling process is best handled with facts, not emotion. How can you detach your love for your business and focus on the practical state of the market? A reliable advisor here is a must.
When you sell your business to another business, the result is a merger of the two. It may result in layoffs of your beloved employees. Once you’ve made the sale, you’ve given up control of what happens. It’s always best when you find a buyer interested in preserving what you love about your business.
After the sale, some of the proceeds may have to go toward your company’s debts. You may also have to sign a noncompete agreement with the buyer.
Closing the Business
If you don’t have a successor lined up, and you can’t find an outside buyer, you may need to shut your company down. Liquidation is everyone’s least favorite option, especially if your business is doing well. Closing down a functional business feels wasteful. But if you don’t want to run it anymore, it’s a valid option. Or if your business is failing, it allows you to get out while salvaging some of the business’s value.
Unlike a sale of the entire business, a liquidation doesn’t allow you to get anything from your intangible assets: your personal brand, your trademarks, your following. It will end with all your employees laid off. You can sell your inventory, building, and tools, using the proceeds to settle any of your business’s debts.
The best way to avoid liquidation is having a plan well in advance of your departure. If you currently own a thriving business, ask yourself: what unexpected events might force you to leave your business? Who could take over where you left off?
Finding Trustworthy Help
The key to getting the most value out of selling your business is good professional advice. A financial advisor, exit planner, and/or business valuator are vital allies in the sale process. To learn more about exit planning, selling your business, and the professionals you can get on your side, sign up for our webinar on April 29, at noon Pacific Time. Andrew Jensen and Kirk Michie will walk you through everything you need to know. Bring your questions!