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When it comes to selling a business, entrepreneurs actually have numerous options available. However, if you choose a bad option then this can severely negatively effect both the business and yourself. As a result of this, it is recommended that you learn about the different ways you can sell your business as well as the advantages and disadvantages of each exit strategy. This will allow you to closely consider all of your options and and find the best option for you.
The easiest exit strategy is a simple sale of the business. This is a good idea if you don’t know how to improve the business or deal with its challenges. It is also a good idea if none of your family members are interested in taking over the business. In order to sell your business you will need to look into valuing a business.
In order to cash out, there are two main ways: You can opt to simply sell the company’s assets or sell your stock in the event that the company is an LLC. To put it simply, selling assets are better for the buyer whereas selling stock is better for you, the business owner/seller.
In the event that you’ve chosen to sell your business’s assets, then the buyer would get all of the facilities of the business, equipment, customers as well as trademarks and goodwill. This means that the buyer would be protected from any other claims for or even against the company. An example of this is if there is an environmental claim then you as the previous owner would be responsible.
On the other hand, when it comes to selling stock, the buyer would be actually purchasing the actual company and they would have to personally deal with all of the issues that may arise. As a result of this, the vast majority of small companies are typically sold via asset sales.
Another option that you have is to sell the company to the managers. You may want to consider this option if you have a great management team that is well liked, entrepreneurial as well as well trusted who are eager to continue the business.
The greatest pro of this particular selling strategy is that you won’t have to spend any effort finding potential buyers and trying to convince them to purchase your company. However, the disadvantage is that you’d likely need to offer your business at a significantly lower price since it is an internal sale.
The next option is to sell your business through what is known as an ESOP or Employee Stock Ownership Plan where essentially, the business is sold to your employees. This type of plan can be quite complicated, however, there are numerous advantages. One such advantage is that you can get money as though you’ve sold the business while still remaining in the business. It is also a fantastic way to reward your staff for their hard work and loyalty.
In order for this happen, the business will need to create an independent trust. This trust would be the ESOP that purchases your stock at a particular price that is determined by an evaluator. Then, the trust would be responsible for keeping the employee’s stock once they continue to work at the business. Once employees decide to retire or even leave the company, they can then sell their stock to the company. Note that they will get paid the market value of the stock that is fair and reasonable.
Now, one of the issues you and many other business owners will have with this particular model is that a third party will place a value of the stock/shares. This is because you may have to take a lower price for that stock or shares as oppose to a potentially higher price if it was on the open market. Additionally, the business will need to have available cash in order to purchase these shares. This can cause monetary issues within the company especially if multiple employees leave at the same time or one after the other.
In the event that you prefer to sell your stocks over time or only want to get some money out of the company without completely giving it up, you can opt to recapitalize your business. You can also change the financial structure of your company by using tools such as debt, stock and preferred stock.
To put this into perspective, if there is an external buyer who wants to purchase your business but not outright and immediately, then your company can sell preferred stock to this buyer. This will give you money and the buyer will be able to learn more about your business before they completely buy it and take it over.
Alternatively, if there isn’t any buyer but the company has good cash flow, then it is possible for the company to get into debt in order to purchase a part of or all of your stake/ownership.
As you can see, there are numerous ways that you can exit a business. So, the very best option would depend on what you want as the owner as well as the current status of the business. By taking a good look at all of your potential options and getting the right advice, you’ll be better prepared to select the most suitable route that will be good for the company, employees and yourself.
