While you might be thinking, “I just started my business, why would I think about leaving it or selling it?” having an end game plan helps you align your business goals to doing what you want to do with your business. Do you want to simply close up shop, and move on? Are you planning on selling your business to the highest bidder so that you have a nice retirement nest egg? Or are you looking for the business to die with you?
Moving On: Your End Game
If you are very attached to your business – it has your name, it is everything you have ever worked for, it’s a family legacy, etc – then you might want to investigate handing the business down. We won’t be covering that here, but you should talk to a lawyer and you can read these articles: here, here, and here. The one important thing to note if you are selling your business, shutting the doors for good, or passing the business down a generation: it takes time to get these things set up, so don’t leave it too late.
If you are planning on building a business in order to sell it – for whatever reason – there are many moving parts that require the help of specialized lawyers, CPAs, mergers and acquisitions specialists, and possibly more.
Selling Your Business: But to Whom?
You might have a long list of potential buyers of your business, but each one comes with different stipulations and legal requirements and financial requirements. Here are some groups to consider selling your business to:
- Co-owner: potentially the easiest option for when you want to sell, you may have already had a clause about this in your original contract. A lot of the time a percentage of the buy out will be given to the seller upfront with the remainder doled out until the total sum is paid for.
- Competitor: lots times competitors will buy you out when you have a successful business. This strategic purchase makes sense for both parties for a number of reasons including expansion into a regional market for a larger company or otherwise regionally based company.
- Customer: sometimes customers are looking to vertically integrate and they want to incorporate your business into theirs.
- The public: if your company is large enough, you can consider selling your company to the public in what is called an Initial Public Offering (IPO). You may be familiar with this term from tech companies that have grown rapidly like Snapchat. ‘Going public’ allows anyone to buy stock in your company in order to participate in its rapid growth.
- Employees: if your employees have the assets, then they can sometimes lump those together in what is called a management buy out (MBO); if they do not have the assets, sometimes they can get a loan against the assets and profitability of the company in what is called a leveraged buy out (LBO). Your employees might also have participated in a stock plan that allowed them to purchase stock in the company through an employee stock option plan (ESOP), but this typically only applies to large companies and is very tricky to set up requiring specialized CPAs and lawyers.