Exiting a business

You've decided to sell your business and it’s exit-ready.

Selling a business is much like selling any other product. Although it can be very difficult when a business is the product of years of your efforts, be sure to take a step back and look at your business objectively.

The motives of buyers

People buy businesses for different reasons such as access to new markets, products, brands, services, capacity and favourable customers. Understanding value drivers will affect how you pitch your business and what buyers might be willing to pay.

Types of buyers:

• Strategic buyers that want to enter a new market or offer a new product
• Financial buyers that are more interested in your company's profitability and stability.
• Quick turnaround buyers that buy a business, tweak it, and then sell it for a profit.
• Management/employees who understand the business - their risk is reduced. You may need to finance a management buyout

How to select the right buyer for your business

• Develop a marketing plan. Determine what media outlets you will use, such as trade and consumer publications. Make a list of contacts that may either be interested in buying a business or know someone who is.
• Join business organisations and associations that can help get the word out to their members and potential buyers.
• Consider using a business broker to free up your time and make your business more appealing to buyers.
• Create a selling memorandum to promote your business. Include key elements of your business, a list of your products or services and an overview of the industry.

Management and employee considerations

• Assess your current employees' job security. Sellers will often negotiate employment contracts for select employees as an act of loyalty for their service to the business.
• The acquiring company will sometimes bring in its own management to run the seller's business, freeing up the owner to completely exit from operations.

Company culture considerations

While sellers are attracted to the highest bid price offered for their company, many choose a lower acquisition price due to cultural chemistry, geographic proximity, and/or an affinity for the acquiring company's management, products and services, reputation, or simply its way of doing business.

Sellers often gravitate toward buyers that have a proven operating track record, that have solid managers and leaders, and that get along with a diverse set of stakeholders including employees, customers, suppliers and investors.

Owner "earn out"

An "earn out" is where the owner commits to remaining with the business for a defined period of time post-sale.

The owner agrees to drive specific performance criteria until either selling the remainder of the equity stake in a secondary transaction or until a new manager can be transitioned in.

Confidentiality

Confidentiality during the sale process is of paramount importance. If employees become aware that the business is for sale (to someone other than them), they may become demotivated. The quality of their work can suffer and key employees may leave.

Your customers may look for other suppliers and your vendors may cut off your credit. Any of these events can negatively impact the perceived and real value of your business.

Important

Using a business broker will free up your time and make your business more appealing to buyers.