In an ideal world, every seller of a privately-held company would leave the closing table with enough cash to enjoy the “golden years.” But we live in the real world and unless your company is worth well in excess of $10 million and you find a buyer who is willing and able to pay all cash, you may receive part of the consideration for your company in a form other than cash. If you transfer your company to an insider (co-owner,
Before they can sell or exit their businesses with financial security, most owners need to grow their companies’ cash flow and transferable value significantly. Without management leading the charge, this is a most difficult task in today’s economy.
Few sophisticated buyers will seriously consider acquiring a company that lacks a capable management team that remains with the business after the owner exits.
A sizeable percentage of businesses are sold to key employees—up to 40% according to a recent survey of 700 written exit plans created by advisors belonging to the BEI Network of Exit Planning Advisors.
“My investment advisor suggested that I sell my company to an ESOP. Is that a good idea?”
“My estate planning attorney recommended that I begin giving my business to my children. What do you think?”
“I’m getting tired of running my business every day. My accountant thinks a sale to a third party is a good idea. What’s your opinion? ”
Sales to key employees,
In the previous blog, we made a strong case for creating a buy-sell agreement for co-owned businesses. To summarize, if owners agree in advance of any transfer event about how to appraise business value, and about the terms of payment, they can avoid the heated and often damaging negotiations that can occur when one owner leaves the company.
We continue making our case by outlining several other advantages of a (well-drafted and recently-reviewed) buy-sell agreement.
If you simply are not emotionally ready to sell, if there is still fire in your belly — enough fire to fuel your continued investment in the company — or if you ultimately want to leave the business to family members or employees, then you may not be in a position to sell your business — yet. If you and the business are ready to sell, but you still hesitate, let’s look at typical reasons for that hesitation and what you may be able to do about it.
Why You Need To Know The Value Of Your Business Today Even Though Your Exit Is Years Away
In today’s economy, no one wants to spend money on something they don’t need today. So why do you need an estimate of your company’s value when you don’t expect to leave for several or many years?
You don’t — if you fall into one of two groups:
- Owners who are sure that their business exits are more than 10 years away.
“You’ve got to be very careful if you don’t know where you’re going, because you might not get there.” — Yogi Berra
It is not always easy to interpret Yogi. In this case, perhaps he is advising you to figure out just where you are headed in your business. As you near the time when you will leave behind the daily worries and stresses of business ownership, have you defined your successful exit?