We’ve all heard the old English proverb, “You can’t have your cake and eat it too.”
In the context of selling your business, you could interpret this proverb to mean “You can own all of your business or sell all of your business, but you can’t do both, at least not at the same time.”
True enough. But there is another option, a partial sale, that has elements of both owning and selling. And it might just be your best option for a number of reasons.
Through a partial sale, you can maintain ownership control and minimize personal financial risk. Whether you’d like to take some cash out of your business, raise some capital to expand, or simply pay down debt, you can do any or all of these by selling a minority share in your company.
In today’s market, the conditions are good for sellers. We’re in the ninth year of a bull market with perhaps two years to go. There’s an abundance of capital from both debt and equity sources. Money is cheap, and there are fewer high-quality companies for sale. Conversely, investors know they can still earn a good return on an investment in a successful, growing company, whether they buy all or a piece of the company.
As a seller, here’s what you’ll need to do:
Make the decision to diversify your personal wealth
Many business owners have a large percentage of their personal wealth tied up in their company. Selling a portion of the company enables owners like you to cash in on some of your hard work and re-invest the cash in diversified, more liquid, long-term investments that will be available for you and your family. Selling a piece of your company while you’re experiencing growth allows you to maximize your return while hedging against an economic downturn.
Determine what percent you want to control
Your personal and financial goals will drive how much of the company you will want to sell. If the goal is to retain control and still be very active in the company, you would sell a minority interest based upon the amount of cash you would like to take out of the company. This strategy also enables you to control the direction of the company and sell the balance at a future date, often at a higher price. Minority sales (less than 50%) normally involve private equity groups seeking to invest in profitable companies with an expectation that they will sell the business within the next several years.
If your goal is to retire or totally cash out of the company, you would sell a majority or potentially all of the company. This type of sale enables you to capture a majority of the value in the company, and it can also relieve you of major management duties.
Determine how much additional cash you need to grow your company
Many middle-market business owners need an influx of cash or specialized expertise to take the company to the next level. A private equity group can provide the cash you need to expand into new markets, purchase new technology and equipment, or hire additional sales people.
The value of your business is determined by what investors are willing to pay. Currently, investors are willing and eager to invest in successful companies, and the inventory available to them is limited. So, they are more likely to adapt to the needs of owners. In today’s marketplace investors can win and you can win too. You might say that both of you can have your cake and eat it too.
At Allegiance Capital, we want you to know what you’re getting into when you sell all or part of your business. We view educating prospective clients as one of the most important things we do.
We like to begin our process by offering a free book called Street-Smart Moves for Selling Your Business by Joe Aberger. This small book addresses 29 topics that are critical to selling a business like yours. Be sure to Sign Up Now.
And, in the meantime, if you have questions, feel free to call me at 312.629.4751.
About the Author
Patrick J. Pollard
Phone: (312) 629-4751