I Want to Sell My Business, What Are My Options?

When you want to sell a piece of furniture all it takes is a quick listing on Marketplace but selling a business is an entirely different story. More than just creating a listing online or installing a For Sale sign on the front lawn, selling your business is a complex process with many options to choose from — you can’t just swipe a credit card! If you are ready to sell your business, contact a business broker to discuss your options and discover which type of sale process best meets your financial goals.

When Selling Your Business: Common Sale Types For Owners

Building a business takes years of dedication and hard work. When the time comes that you want to sell it is important to know all of your options so you can make an informed decision. Selling a business isn’t just about finding the right buyer, it’s important to consider the aftermath, as well. The best way to choose a potential buyer is to understand the most common types of sales, the motivations behind them and the pros and cons of each.

Management Buyout (MBO)

As a business owner you’ve likely spent years cultivating the ideal management team to propel your brand forward. In the case of a management buyout, sellers have the option to either sell the company in its entirety or a portion of, to your existing management team.

Benefits of MBO Sales:

Less Risk: By selling to existing management teams, there is reduced risk of a rocky transition. Hands-on knowledge of daily operations reduces the impact on operations, employees, customer service and corporate culture.
Flexibility: In the event that you aren’t ready to part with your business in its entirety, MBO sales make it possible to sell off a portion of shares. This means less hands-on responsibility but allows former owners to create a transition plan for themselves.

Risks Associated with MBO Sales:

Reduced Sale Price: Management buyouts will often come along with a lower offer price. With lower working capital on-hand, management teams often have to rely on help from financial institutions.
Buyer’s Remorse: Even after holding a management role over a long period, managers may not be interested in the added responsibility that comes with ownership. If an individual is not equipped to handle a heavier workload or commitments wane, there may be buyer’s remorse. A thorough succession plan and contingency plan is important to ensure that there will always be someone willing to take on operations.

Sale to Financial Buyer

This particular type of transaction deals with sales to individual buyers that are not currently operating within the industry. This type of buyer is looking to increase the value of an existing business, either operating it themselves or in the hopes of selling it for a profit at a later date.

Benefits of Financial Buyers:

Higher Working Capital: Financially motivated buyers often have more working capital and are able to make higher offering prices, often without needing to lean on financial institutions.
Established Business Management: Entrepreneurs looking to maximize the value of a business for resale will have management solutions in place before finalizing a sale. This often means a smoother transition and access to a wider support network for employees.

Risks Associated with Financial Buyers:

Resale: The goal of this type of sale is often to operate a business for a designated period of time before selling it at a later date. In order to make this into a lucrative deal on the side of the buyer means maximizing the chance of higher resale value. The typical methods of achieving this is through cutting down on any existing company debt, growing the business and reducing running costs. There is no guarantee of employee retention in this case.
Consultation Period: In some cases the conditions of sale require current owners to stay on in a reduced capacity or in a consultant role to help with the transition. This may not align with the goals of a seller in regard to retirement planning, the need for medical leave or other existing plans.

Sale to Strategic Buyer

Strategic sales often occur between larger companies in the industry looking to purchase smaller businesses or firms in order to enhance their portfolio, eliminate competition and increase their market presence.

Benefits of Strategic Sales:

Industry Experience: Selling to someone who is already experienced in the industry paves the way for a smoother transition and often doesn’t come along with the need for a commitment to a consulting period.

Risks Associated with Strategic Sales:

Brand Dissolution: When acquired by a larger company, there is a good chance that your brand will be swallowed by the larger entity. There is also no guarantee that current staff will be kept on under new management.
Lower Investment Level: Strategic buyers will often approach a sale with a lower offer than potential buyers who are looking to invest in a small business on their own.

If it is time to sell your business and you are curious about the best way to maximize your sale, identify ideal buyers and determine a fair market price for your business, don’t hesitate to call a broker. A business broker will help to perform all necessary due diligence, walk clients through complicated documents like disclosure agreements, compile necessary financial statements and more.