So you want to exit your business. You’ve worked hard for many years and you want a change. Maybe you want a change of pace, or to take a rest, or maybe you want to look at another venture using the cash from the sale to finance it. Whatever the reason you want to exit, you want to do so profitably, with as few problems as possible.
Maybe you will approach a business broker in the expectation that they will find a suitable buyer. And certainly business brokers are the people to market your business widely. Then when you find a buyer you negotiate a price and the sale take place.
Sounds like a fair enough arrangement and one that in many cases has resulted in a good result for both parties.
However. as you consider approaches you may find that starting offers are considerably lower than you think your company is worth. This may lead to protracted negotiations before getting a firm offer. Then you may be required to stay in the company to help the new owners get established, to introduce the new owner(s) to your customer and to reassure your customers that it will be business a usual. The sale price may be by way of cash or a mixture of cash and shares cashed out over time. In some cases the amount paid may be dependent on the company performing at levels advertised at the time of the sale.
However there can be challenges and in this article I look at three potential fishhooks and conclude with an exciting alternative exit approach.
Fishhook 1. You lose control of the company
Since you have sold the business, you no longer have full control over your company, nor the bank account. If there is an expectation that the company will achieve a certain level of sales or profit, and you believe that certain actions need to happen, you are not able to take action without the agreement of the new owner. If their level of business ability is not the same as yours, you may not be able to take the necessary actions to ensure the company achieves the levels you know are possible. How then can you be expected to achieve the target while you are denied the means to achieve that target?
So in two stage purchases you want to retain some financial control.
Fishhook 2. Your customers may not like the new owner
You have kept the likely sale of your company confidential so your customers don’t get the jitters. Now imagine the frustration you would feel, as you introduce the new owner, if your customers decide not to continue to do business with your company. How will you be able to justify the future earnings you advertised if your customer base evaporates? Unless your new owner is prepared to ease their way into the company and not substantially change the culture you have built up, you may again have no certainty of future earnings.
So it can be important to have some kind of guarantee that until the final payment is made, you have veto over any changes you feel will affect relationships with existing customers.
Fishhook 3. No benefit from exceeding the target
Imagine if the new owner is able to bring some great new ideas and build them into your company so that it earns way more during the “earn out” period than you estimated at the time of sale. The new owner is happy but you will probably feel a little cheated, given that you contributed to the additional earnings. It would be nice to be able to exit with a multiplier calculated on the increased earnings rather than on the original.
So if it can be good to ensure that the agreed target allows more should it be exceeded. Also, it can be good to make sure that there is no possibility that the new owner may hold back on same sales until after the earn out date is passed.
The alternative exit option - Agglomeration
What if, rather than going through all the rigmarole of selling to another person, you could simply trade the shares in your private company for shares in a big publicly listed company (PLC)? What if you could still keep full control of your business - and benefit from all the future increases in company profit? And what if doing so were to only take a matter of weeks with no upfront fees?
In the alternative exit option you do not lose control. You remain as CEO after it is sold and retain full control - of the chequebook and of how to make best use of the resources the PLC brings to your company. You get to make all the strategic decisions about your company. Further you get all the benefits of being part of a global PLC - collegiality with some of the brightest entrepreneurs in your industry and outlets into markets you never thought possible. Moreover, you get to trade future earnings for more shares in the PLC.
Then, when you wish to exit your business you can do so at your leisure. Simply replace yourself as CEO and sell your shares or retain them and earn dividends.
Agglomeration of your company is a not too different to simply selling your company. However, it is more than likely to yield you a much better sale price and bring way less stress. The thing is, because an agglomerated PLC usually has no debt, is directed by entrepreneurs and makes substantial profits they are highly sought after by investors.
You can find out more at www.agglomeratebiz.com
Agglomerate Your Business brings together three leading New Zealand business coaches who believe that entrepreneurs are the change makers in the world and that there are 'millions' of good small businesses run by entrepreneurs that deserve to have a level playing field with the big boys.