Business Seller Options

Business owners who are thinking of selling their business often believe they are faced with two choices:

Keep the business, or
Sell the business and move on.

However, in the world of middle-market companies (with revenue between $3 and $100 million), owners can actually enjoy a variety of options. Smart buyers know that a business’s current owner is likely to have extensive knowledge, skill, and relationships that will be very beneficial to their growth plans and will be difficult to replace.

How Much Of Your Business Should You Sell?

An owner’s options flow from two main decisions. The first is how much of the company to sell. Owners may agree to sell 100%, sell a majority stake and retain some ownership, or sell a minority stake and retain control. Typically, buyers providing significant capital will want to purchase at least a majority share, however, there are investors willing to take on a minority share just to provide capital and/or management expertise to participate in future growth.

Determining Future Roles After Selling Your Business

The second decision for owners is in regard to the role they want to play in the company. This could range from continuing their current role to a reduced role more focused on areas of strength or enjoyment, to complete disassociation after a brief transition period. At BMI, we have had a number of owners who enjoyed working with customers and growing their businesses, but the day-to-day operational responsibilities made this difficult to continue. By selling to buyers who could relieve this burden, the owners were able to do what they enjoyed most.

Selling Your Business – Options

Combining the options for how much of the company to sell with an owner’s possible roles post-sale, results in at least 9 basic possibilities, outlined below:

The owner sells 100% of the business and leaves after a short transition period. This is often the choice of owners looking to completely retire.
The owner sells 100% and stays as an employee with the same responsibilities.
An owner might do this to reduce their personal financial risk in preparation for future retirement. At the same time, the buyer gets total control but still retains the owner’s expertise. This is attractive for investor groups that do not directly operate the companies they buy. Typically the owner can share in future income through profit sharing, bonuses, or commission plans.
The owner sells 100% and stays as an employee with reduced or focused responsibilities. This is similar to #2 above, except the owner no longer has to worry about running the company, and they focus on the tasks they prefer (such as sales). Buyers often love this because they get the best salesperson possible.
The owner sells 100% and stays as a consultant.
While owners who become employees typically have significant flexibility, those who desire more independence and less defined responsibility will consider consulting. Consulting may also have tax advantages.
The owner sells the majority stake and retains minority ownership, leaves the company but retains the minority ownership stake. This can provide comfort for the buyer and potential future gains for the seller.
The owner sells the majority stake and retains minority ownership and stays as an employee with overall management responsibility.
This is often preferred by private equity groups that do not operate businesses. For the seller, this allows taking out some financial risk while obtaining a partner to build the business and then sharing in future profits and a future sale.
The owner sells the majority stake, retains minority ownership and stays as an employee with reduced or focused responsibilities. This allows a seller to participate in future growth and contribute to that growth in the most preferable way.
The owner sells a majority stake, retains minority ownership, and stays as a consultant. This allows a seller to participate in future growth and contribute to that growth in a flexible manner.
The owner sells a minority stake, retains controlling ownership, and continues as the company President. Minority stakes are more infrequent however there are investor groups quite willing to do this for companies with strong management and high growth potential.
Accommodating multiple active owners may result in some combination or variation of the above options.

Time Matters In Business Sales

Time is another variable of importance when it comes to evaluating your options. Generally, buyers will be flexible on the term of employment or consulting agreements, but you can typically expect these to be anywhere from 1 to 5 years. Timing on the eventual sale of your remaining share of the business can be highly variable and should be discussed with the buyer and your advisors.

Source of Options to Sell Your Business

Different buyers have different needs and parameters which determine how they will work with sellers. Therefore, it is necessary for prospective sellers to maximize their available options. By working with skilled business intermediaries, owners can confidentially access a larger pool of potential buyers.

Conclusion

When selling a business, the number of options can seem daunting, however, it is not necessary to know exactly the course you want to take before the sale process has started. It is important to have an idea of your ultimate goals as the process develops and you meet various buyers. You may just be given an option you had not considered, so always keep an open mind.

For more information, contact BMI Mergers & Acquisitions:
Office: 610-777-7029
Email: contact@bmimergers.com