The choice to sell your business, even when it is in the best interests of the company, is one of the most important and hardest business decisions you may ever have to make, writes Charisse Gray
You've built up your business to the point where you are now looking for a potential buyer to take over the reins. This is an important step and you need a succession plan to make sure you achieve the best possible return on your efforts.
A number of potential buyers may be interested and each will have different implications for you and your stakeholders. We take you through some of the owner’s options.
Sale to an existing competitor
Competitors are often seen as an excellent option. They are familiar with the industry and the business’ place within it. They understand the value of the business, and are also often in the position to access the required capital for the purchase without vendor financing. If you are only interested in a good financial outcome, this is an attractive option. In some cases the competitor may ask you to continue in a management capacity for a period before retirement to ease the transition. This opens further options for compensation and continued involvement if desired by you.
Sale to a strategic buyer
Selling to a strategic buyer is similar to selling to a competitor in many ways. The strategic buyer is more likely to have the operations continue, as often he wants to integrate its productive capacity (vertical integration) with his other business. He is likely to have access to capital and may desire a transitional period during which you provide management services.
Sale to current management
A number of factors may come into play here. Management may be about the same age as the retiring owner and have little interest in this option. Managers who have long worked in a subordinate position may not have the skills and drive to assume full leadership. Managers are not likely to have the financial capacity to purchase the business without some form of vendor financing. This increases the risk to you if their future payments are dependent upon the continuing success of the enterprise. On the positive side, managers may know the business extremely well, have the required entrepreneurial outlook, and be in a position to assume ownership and control in a well-planned manner.
Sale to management or employee groups
Selling to a combination of management and line employees entails some of the same issues as a management buyout with two additional factors. If you are interested in ensuring continuity of the business and protecting jobs, the employee buyout provides an excellent vehicle. Employee/management buyouts usually have a good rate of success.
The opportunity for an employee/management buyout will be greatly enhanced if you have developed and maintained an open and trusting relationship with your employees and managers.
Sale to an unrelated party
An unrelated party who is simply looking for a new business venture to own and operate is likely to have access to the required financing, allowing you a clean financial break from the business. They are also very likely to want to maintain the business in its current operational form, giving you some comfort as to the business’ future direction. Continuing advice from you may be required during the first year or so.
Liquidation of the business sometimes represents the best financial option if you want to make a clean break. This works well in circumstances in which some of the underlying assets of the business, such as commercial real estate, may have a disproportionate value to the business being conducted within it. The business may no longer be viable or attractive to purchasers with the level of investment or debt required to purchase this asset.
Are you succession ready? It’s never too late to get help.
• NSW Business Chamber has set up a free online diagnostic system with information relevant to your situation at http://www.australianbusiness.com.au or phone 132 696.
• Building Entrepreneurship in Sm•all Business (search at http://www.ausindustry.gov.au) provides strategies for exiting a business while ensuring business continuity.
• For mentoring and skills development services for succession planning, try Business Victoria’s Building Entrepreneurship in Small Business program or Buying, Selling or Closing a Business links at http://www.business.vic.gov.au
• Family Business Australia (http://www.fambiz.com.au), for tips on making succession a success.
Charisse Gray is senior business writer for NSW Business Chamber.