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.
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.
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.
Most private company owners fail to maximize the value of their business by selling at the optimum time. Engrossed in running the business, they work on long after the best point to realize the wealth they have created. The vast majority of private company owners wait too long to sell their business
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.
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.
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?
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.
Recapitalizations can be used to provide liquidity to owners, refinance the balance sheet or fund future growth initiatives. When the owners sell a majority of the business but still retains some ownership, it is termed a “majority recapitalization”.
In many cases, the Entrepreneur finds it difficult to know who they should target as a potential buyer for their business. At first glance, any buyer with a checkbook may be attractive. In practice finding the right buyer when selling a business is both an art and a science.
Management Buyouts, or MBOS, can sometimes have a negative connotation. Maybe that’s because it sounds like the management team is getting “taken out”. On the contrary, it is the exact opposite. A Management Buyout is a fancy acronym for when the current managers buy controlling interest of a company from its owners. That’s a good thing for management!
Selling a business is one of the most exhausting endeavors an entrepreneur will undertake. Unfortunately, many simply do not succeed. In fact, only one out of ten entrepreneurs will actually complete the business sale process and transfer their business to another. Selling a business involves many different parties, all of whom have a special role and a unique skillset. Most importantly, they must all work together. Those entrepreneurs who succeed recognize ‘it takes a village to sell a business’.
Often, business owners ask me one of those “quick questions” – what can I do to maximize the sale price of my business? The answer? Not as simple as you may think. But there are 4 factors that can increase the value of your sale price.
If you have ever endured the process of selling a business with the assistance of professional advisors who specialize in mergers and acquisitions, you will agree with me that this is not something to try at home!
This is a story with an unhappy ending. I heard this story from employees who worked for a company many years ago. I knew the company well and as far as I know, this is the truth.
As I meet with entrepreneurs, I’m often asked the same question: “When is the best time for me to sell my business?” The answer to this question is not the same for every business owner, for many reasons.
The best solution to a problem lies in uncovering what the root cause of the problem really is. So often, this is the case when an entrepreneur is struggling with profitability in their business. Over the past few posts, we have discussed the concepts of how a minimum order policy and Pareto’s Principle applied to the customer/client base can be very powerful to help an entrepreneur improve the value of their business.
The many years of hard work and long days at the office may be about to pay off—you have just received an offer from a potential buyer to acquire your business. Just as you developed and followed a detailed business plan to build your business, now you need to develop a well-thought out plan covering the sale of your business, paying proper attention to the due diligence process.
Anyone who owns a family business is intimately familiar with the blood, sweat, and tears associated with building and then keeping the business viable. Nevertheless, it is not unusual for the business entrepreneur to postpone consideration of various issues involved in transferring the business to the next generation, including determining the value of the business.
Your worst nightmare comes true! You get an email on Friday afternoon from your largest customer indicating that they are changing suppliers for “strategic reasons.” They represent 20% of your sales revenue and 35% of your profits.
For every entrepreneur, a smooth transition of business ownership will be of importance at some future point. The Buy Sell Agreement deals with a specific exit strategy case. An agreement by and between business owners, it establishes a mechanism for the purchase of ownership interests following the departure of an owner due to a triggering event (i.e., death, divorce, disability, retirement, etc.).
Understanding a company’s operating results is an important factor for a business owner to determine the value of a business. However, the operating results must be placed in the proper context by comparing them to results of the industry as a whole. By doing so, a business owner is able to understand how they are doing financially relative to their industry peers. This exercise is known as benchmarking.
At some point in time, every business owner will leave their business (voluntarily or involuntarily). Through proper planning, an owner should expect to achieve their desired goals. Statistics show that the value of an owner’s business accounts for over 90% of their personal wealth. However, more than 75% of all business owners do not have a formal transition plan in place.