How do you know it’s the perfect time to sell your business? Every business owner must answer this issue on their own terms. It’s a complex process that could affect future generations and is one of the most pivotal choices a property owner can make in their lifetime.
Working with an advisor early in the planning process of business appraisal can provide insights and solutions to frequent unknowns, but ultimately only the owner can determine when the time is perfect for a sale based on his or her own circumstances.
Identify Your Goals
Many business owners set their sights on increasing their company’s sale price above all else. But, within the target sale price, shareholders need to think about cash at closing versus deferred value (seller notes, earn-outs), and pre-tax versus post-tax proceeds. The owner must also decide whether or not he or she will continue to play a management role in the business following the sale. Is the suitable management team in place if the owner wants to completely step away? Owners will want to know how a sale will affect not only their legacy with employees and the community, but also how it will affect their family.
Analyze the Possible Values
The timing and value of a company’s sale depend heavily on the owner’s familiarity with the factors that affect its value. Key performance indicators (KPIs) and the company’s historical financial performance, with an emphasis on earnings before interest, tax, depreciation, and amortization (EBITDA), are two such elements. The long-term viability of the company’s offerings and the potential for future expansion are two other considerations in the valuation process.
The national or global industry forecast, M&A activity within the industry, and current finance dynamics are all examples of external factors that could affect a company’s valuation and prospective sale price.
Find Potential Buyers
In a business sale, the prospective purchasers’ motivations will influence the value of a company at purchase prices that they offer. Selling to a strategic competitor, for example, may result in a “premium” price due to perceived synergistic value, but it also may result in the seller losing control of operations and creating uncertainty for the current management and workforce.
Whereas the seller may only receive a “market” price in a sale to a private equity firm, the buyer and the company’s management and staff may feel more secure in the latter scenario than in a strategic one. Private equity firms, on the other hand, look to make a quick buck by purchasing a company, keeping it under their control for three to five years, and then selling it off.
It is possible that when a seller is ready to sell, the target investor is not ready to buy, even if the private equity firm or strategic buyer seems like a good fit because of market financing conditions, internal management changes, a recent investment in the seller’s industry (whether successful or unsuccessful), or internal bandwidth constraints.
Employee stock ownership plans may be a more permanent leave option (ESOP). An ESOP is a type of qualified retirement plan that benefits both business owners and their employees by providing a tax-advantaged means of transferring ownership. If you’re an entrepreneur trying to maximize your exit funds, keep your employees secure, and keep your name in good standing with the community, an ESOP may be the way to go.
Consult a Credo CFO Advisor Who Can Guide You Through the Selling Process
There is more to selling a business than money. When determining when and how to sell a business, an owner’s history in the community and the future of the employees who have helped establish the company are important considerations. We advise business owners to consider the pros and cons of a potential transaction from every angle before making a final decision.
Business owners can benefit greatly from the guidance of an expert Credo advisor when making decisions. Whether a business owner is considering selling to private equity, a strategic buyer, or into an ESOP structure, we will help you better understand the structure, results for shareholders, and potential outcomes for management and employees. We help owners and their teams understand the advantages of each transaction type and our insights into the current state of the market as they make important decisions.
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