Every business owner has a big dream for selling their business and wants to make it happen. However, many don’t know where to start or what to do. Selling a business, in some ways, is like selling a house. You don’t decide one day to put a “for sale by owner” sign in the yard and wait for buyers to come. You must spruce the house up a bit. Update the kitchen and bathrooms, put on a fresh coat of paint, and install new flooring to make it look good for maximum profit. Then you hire a real estate agent who puts it out on the MLS so all the buyers can see it and have the agent run a process. It involves lots of planning.
When asked, 50% of business owners say that selling to a third party is their top choice. 17% want to sell or give it to a family member and 13% to a co-owner.
However, when we look at the top 3 choices regardless of primary selection, we see that selling to management or employees emerges as a major consideration for owners, but it is not their top choice. Is this because the owner believes there is no interest, or they lack training, or a combination of both? Planning for multiple options is desirable to maximize value at exit.
I have a client that sold to their management team last year. There were years spent developing the management team’s leadership and management skills. They transferred decision making and customer relationships gradually over time so that clients and employees would see a smooth transition. When the time came to transition ownership and management, buyers and sellers looked at all the options and came up with a plan that worked for both parties. The founders of the company made a conscious decision to sell to management even though there were offers from strategic buyers. They preferred to keep the company in “the family” so to speak.
I have several clients weighing options right now. One client would like to sell to management, but management doesn’t seem to be interested in becoming owners. Not every employee is an entrepreneur waiting in the wings to seize the opportunity. They perceive it to be too risky. They prefer the comfort of a steady paycheck without worrying about how to make payroll. I have another with a similar situation. Not as much planning has gone into grooming management to take over the business. Neither of these clients have a family member that could be a successor, so the options are even more limited.
Every business owner wants to maximize the value of their business. But many don’t take on the hard work of planning a successful transition of ownership and management. It’s not their fault. They’re so busy working in the business that they don’t work on it. It takes a guide with experience in exit planning to present them with their options and plan.
