When thinking about ways to sell your business, you are likely familiar with the most common strategies proposed by business advisors: selling to a third-party such as a private equity firm or a competitor, or selling to your family. What your business transition advisor may not have discussed with you is instead selling your business to an Employee Stock Ownership Plan (an “ESOP”).
If you’re considering the sale of your business, or possibly the acquisition of another competing business, it’s important to understand the selling/buying process.
An often overlooked and important first step during the process of buying or selling a business involves the negotiation of certain terms the buyer and seller will ultimately agree to at the closing table once the due diligence phase of the process is completed.
If either party ignores the importance of the initial terms’ negotiations, they can often end up with a bad deal or no deal at all.
For the business owner who desires a great outcome, including the business owner’s family in the exit planning process, as well as the decision to sell, is vital.
A Broker’s Opinion of Value, or BOV, can help an owner determine what the business would sell for on the open market. This, in relation to an owner’s “pain” level, are often enough to make a decision if they are ready to sell.
Learn about three very important facts you need to know as you prepare your SBA business for sale.
Our Featured Advisors, Attorney Mark Fazio and Business Broker Neal Isaacs, answer a few questions to help business owners learn how to prepare for due diligence when selling a business.
When it comes to the sale of a business, there are a number of costs – both expected and unplanned – all business owners should understand before they agree to sell their business. A few of our Featured Advisors have weighed in, offering their expertise and perspective to explain the costs – from business broker fees and legal costs to hidden fees – as they relate to selling a business.
The method chosen to transfer ownership of a business for sale is one of the most important factors to consider as a business owner. And the reason for its importance is related to the wide differences in the amount of cash received (net of taxes) by the business owner across the various methods of transfer or sale. An ESOP or Employee Stock Ownership Plan is one method of ownership transfer or sale many business owners consider when they decide it’s time to retire. That said, let’s explore the ESOP as a potential method of transfer or sale from both the business owner’s and employees’ perspectives.
When a business owner begins to negotiate the sale of his or her business with buyers for the first time, he or she will inevitably face a difference between the buyer’s offer price and the desired selling price. It’s at this point when a lively debate between the parties will occur over the underlying reasons for the business’s asking price being what it is. At this time a seller will be well-served if able to offer justification for an increased business valuation and a higher business selling price.
Perhaps you are one of those business owners who feels you have plenty of time to think about exiting your business. You consider yourself lucky, and whenever you feel it’s time to leave, you will be able to do so with ease.
Why it may not be so – This is not one of those articles about how long it takes to leave a business, or how hard and expensive it can be. Instead it’s about the false impression many business owners have of life after the business – all wine and roses (PS it’s not).
According to the Chief Actuary of the Social Security Administration, “Currently, the Social Security Board of Trustees projects program cost to rise by 2035 so that taxes will be enough to pay for only 75 percent of scheduled benefits.” This bleak reality is not of great concern to the successful entrepreneur who may not need to rely heavily on social security benefits retirement. Yet, any potential reduction in social security benefits in the future is a serious threat to the well-being of the 28 million small business owners in America.
When things go wrong with the sale of a business the parties involved look for remedies in the liquidated damages provisions established in the purchase agreement. Such provisions are included when a purchase agreement has been signed in advance of an actual closing when the business is transferred and a purchase price is paid.
When a business is about to be sold, the parties to the sale may find it beneficial to establish an escrow agent to handle the transfer of certain assets and cash between the buyer and seller. Many times the parties agree to use the escrow account held by one of the party’s business attorneys. However, in many cases the parties prefer to hire an independent escrow agent to handle the assets and cash that will change hands.
The valuation multiple formulas available to compute the value of a business for sale are numerous and can be confusing to many small business owners. In fact, many professionals can be similarly confused by the various multiple formulas currently in use.
When working through a business sale, an inordinate number of resources on both sides of the table are dedicated to drafting and negotiating the Stock Purchase or Asset Purchase Agreement. This is true especially in the last one-to-two weeks before the closing. In fact, I’ve had clients remark that during their entire tenure as an entrepreneur, they never spent as much time speaking to their advisors as they did during the last week of their business ownership journey!
Successful entrepreneurs have unique opportunities to plan for paying taxes in retirement. Learn more about how to create taxable and non-taxable assets.
So you’ve decided to sell your business, but what structure is right for the transaction? Buyers and sellers often prefer different structures due to various factors which change based on the structure and which have different impacts on the parties. Generally there are three (3) categories of factors that drive the eventual structure of a deal: (1) business issues, (2) assignments and consents, and (3) tax issues.
Transition Planning for the platinum years shouldn’t be overlooked, or underrated. What will you do when you retire? It’s time to start answering these ever-asked questions.
Small business owners have an opportunity to learn from their peers who have attempted and failed or, more importantly, have successfully sold their business during the second quarter of 2014.
My business partner, the author Jack Beauregard, and I recently had breakfast with Lorraine McGregor from Vancouver, BC Canada. Lorraine is the author of books on Exit Planning and Entrepreneurship, as well as an experienced business consultant. We were all discussing why so many business owners were delaying (the inevitable) transition planning from their businesses.
Business Brokers and M&A Intermediaries may use or reference the ‘Lehman Scale’ when discussing their compensation method with a business owner contemplating the sale of their business. The Lehman Scale was originally developed in the late 1960’s and used by the Lehman Brothers when raising business capital for their clients.
Business Valuation Experts come in many forms, and for a business owner it can be very difficult understanding the various designations. More importantly, when the business owner is in need of a valuation, understanding exactly what type of expertise is necessary and ultimately who to hire can become a daunting task.
To sell or not to sell, that is the question many business owners ask themselves at least once during their tenure as business owners. Sometimes, the decision to sell is easy if the owner is ready to retire or has decided to pursue a new career or business opportunity. However, in many cases, business owners struggle with this critical decision. Fortunately there are several steps you can take to make an informed and stress-free decision on whether to sell your business now, later, or not at all. In all cases seek the advice of several third party professionals such as a Business Attorney, Certified Public Accountant (CPA), Business Appraiser and/or Broker, and a Financial Advisor as well as consultants in your industry.
Today I fired LinkedIn. This might not jibe with the title you were expecting. To be technically accurate, I “merely” cancelled my “Premium” LinkedIn account and downgraded to a free “Basic” account. But I just stopped a recurring payment to LinkedIn, possibly forever. I consider a non-paying “member” not a customer, but maybe that’s semantics.
Term Sheets or Letters of Intent (LOIs) are commonly used in the buying or selling of businesses. The purpose of LOIs are to state clearly the principal terms that the parties have agreed to as part of the deal and to represent the intent of the parties to pursue the contemplated transaction.
One of the many questions asked by entrepreneurs as they plan for the sale of their business is related to the Adjusted EBITDA definition.
When an asset has a grossly inflated price, it is by definition an asset bubble. Does this apply to many small businesses in the US? Probably yes, in my opinion. Most small businesses have a balance sheet listing some assets; therefore they are subject to being part of a bubble.
Indemnification allocates the risk of various post-closing losses between buyer and seller. For this reason, the indemnification provisions of your purchase agreement will very likely be among the most heavily negotiated provisions in your purchase agreement.
A friend called me recently and asked a question: Do you think you could help a young man, he has a big problem? It turns out that my friend’s friend knew this young man and his father. The father is a well-regarded attorney who has a solo practice – sounds like thousands of other attorneys in the US.
There are many pitfalls to avoid and precautions to be taken when contemplating the sale of your business to a competitor. In particular, selling a business to a competitor can have tricky antitrust implications that require much care prior to closing.
You have endured multiple meetings with potential buyers. You’ve written dozens of emails and suffered through several rounds of negotiations to secure the best price and deal structure. At last you have decided on the offer to accept. That’s the worst of it over then? Think again – you have yet to experience the joys of due diligence and sale contract negotiation.
If a customer’s total revenue for the year represents 8% or more of all revenue for the same year, you have a customer concentration risk.
The reasons for selling a business are many and varied; in the end, however, the desired result is the same – money. So how does one go about maximizing profit when selling a business?
A business plan is critical to the success of any business. And, if the plan is frequently reviewed and updated, it becomes increasingly valuable over time. It provides valuable historical information to help a business owner make decisions on the future direction of the company.
For Bill Hinchey, his entrepreneurial journey was one of rapid growth. Just not in the way he initially hoped for. In just 13 years, he saw the sun care product company he started with two partners in a Pennsylvania basement develop into a worldwide leader in the medical device industry.
It’s the late 1980’s and Bill Hinchey just saw his young company, Solar Care Technologies, featured in a complimentary Wall Street Journal piece. Hinchey, along with two other guys he met while working for consumer products giant Proctor and Gamble, had recently set up shop in a business incubator in Pennsylvania’s Lehigh Valley to develop a sunscreen towelette.
If you’ve grown a valuable business, there is no doubt your employees are a big part of your success. You also know that hiring, training, and managing a great team of productive employees is a difficult task. And keeping your best employees is yet another accomplishment! But the painful truth is your competition would be very pleased to hire away your best employees.
For many entrepreneurs protecting the livelihoods of loyal employees after selling their business is an important consideration. There is always a fear that a trade sale to a rival will lead to job losses, perhaps even the closure of the entire business, as the new owners seek to boost profits by eliminating duplicated resources.
Most entrepreneurs build a business with a view to an eventual profitable exit. Most probably have lifestyle aspirations in mind that imply a certain amount of money to be realized from a sale. Whether they are looking at an exit now – or a decade from now – they need more than the subjective opinion of friends and acquaintances as to how much their business is worth.
Many business owners are under the wrong impression that their business debt will disappear when their business is sold. In some cases, the debt is absorbed or is assumed by the buyer. But usually this is not the case.