Let’s discuss the Top Decisions You Need to Make NOW to Sell Your Business LATER!
If you read my past two articles, Top Decisions You Need to Make NOW to Sell Your Business LATER: WHEN and WHY, you’re halfway to setting the foundation for your profitable and successful exit. If you haven’t read those, I encourage you to as soon as possible.
In this article, I’m sharing the third of four decisions: WHO.
Before you can identify who you want to attract as potential buyers, it’s important to narrow down exactly what your goals are. To help with that, answer these six questions first.
- Do you want to sell 100% of the company at closing and walk away with the cash?
- Do you want to merge with another business and get a business partner, more resources and maybe create a totally different offer?
- Do you want to pass the business on to family members or employees?
- Are you willing to keep working for 3-5 years after selling all or a portion of the business?
- How important is it for the brand to continue? What are your cash needs?
- What if someone asks for your business assets only?
Even if you don’t have all the answers now, it’s important to begin thinking through both those six questions and the following four options.
Option One: Family Members
Consider transferring your business to your children or another family member. When considering family succession, many entrepreneurs are willing to finance a larger portion of the deal themselves, which then reduces the company’s debt.
Keep in mind entrepreneurship isn’t for everyone. Just because they’re a family member who’s interested doesn’t mean they’re a shoo-in. Consider whether they have demonstrated strong management skills and the ability to earn employees’ trust and respect, regardless of their last name. With that in mind, can you identify anyone in your family who may want to buy your business and has the skills to manage it well and make it grow?
A management buy-out is when you sell your business to key employees. This is a popular form of exit planning and is something you can begin working toward well in advance of your exit. To consider this option, you must have key employees with the skills or potential to drive your company forward. However, that’s the easier part. The second requirement is they must have the means, desire, and ability to take on the financial risk.
Keep in mind if you finance their transaction, you won’t get all your money at closing. Are you ready and willing to help them by financing their acquisition? Entrepreneurs who choose this route often ask for a 20-25% down payment at closing and regular installments over a number of years.
A primary reason for a merger or acquisition is to gain something you don’t already have. Maybe your company has strengths, expertise, and knowledge that your competitors want to acquire. This could be a great product, proprietary service, or strong research and development team. Or maybe you’re established in an area that they can’t possibly hope to break through for different reasons.
Do they have a healthy business with a knowledgeable team capable of making a successful acquisition? Although mergers are not always successful, they are more popular today than ever before. Ask yourself if one of your competitors would consider purchasing your business.
Over the past years, I saw business owners create businesses with the goal of selling their businesses to strategic players. You might not be familiar with the term “strategic buyer/players,” but you’ve probably seen them in the market.
For instance, when Facebook bought WhatsApp, Facebook was a strategic buyer. A strategic buyer is a company that seeks to grow by purchasing another company, as opposed to someone acquiring a company simply to run it.
In many cases, strategic buyers are a great fit for entrepreneurs looking to sell their businesses. Can you think of any strategic player in your industry that might be an interesting fit with your company? If not, I recommend building your business with strategic players/buyers in mind so that when you are ready to sell, you can reach out to them.
No matter who you choose to sell to, a family member, key employees, or someone in or out of the industry, you need to plan your exit and decide if you will sell your entire business or a portion of it.
If you’d like support or more information to set yourself up for a successful and profitable exit, I invite you to watch my free on-demand masterclass – How to Plan Your Smooth & Successful Transition from Business Owner to Highly Profitable Seller (withOUT headaches, brokerage fees, or accepting LESS than you deserve).
I’d love to know who can be a potential buyer for your business.
Cheers to your next level of success! 🥂