There are a number of fundamental factors that a business owner must bear in mind when putting an enterprise up for sale. By seriously considering these points, a business owner not only enhances the prospects for a sale, but even may be able to position his or her enterprise for a sale at a premium price.
Timing and Tax Consequences of a Sale
A primary consideration for a business owner to keep in mind when contemplating the sale of an enterprise is the potential tax consequences. Associated with this analysis is the need to contemplate the tax implications of a sale at a particular point in time. This includes a close consideration of the capital gains implications of a sale.
Strive for Multiple Bids
As is discussed in a moment, at any given juncture today, there likely will be fewer qualified buyers for a business than was the case even a few years ago. Thus, a business seller can’t be dilatory in accepting a decent bit. A business owner can strive to garner multiple bids on an enterprise.
Research demonstrates that when multiple bids are garnered for a specific business, not only is the asking price met. In addition, bids are rising above the asking price, which is an obvious advantage to a seller at a time when potential buyers are more limited in some instances than in the past.
Growth Matters when Selling a Business
If a business isn’t on a growth trajectory at the moment, the owner of an enterprise must be able to demonstrate that “growth is just around the bend.” With so many businesses up for sale at any given point in time, the idea of a party making a purchase of an enterprise with the idea of turning it around is antiquated and not likely to happen.
With this in mind, a business owner nearly always must have a business on a growth trajectory in order to make a decently priced sale. The only other hope is for there to exist demonstrable evidence that with or without a sale a growth is on the horizon — and that can prove to be a proverbial “hard sale.”
Fewer Qualified Business Buyers Today
The massive Baby Boom generation is moving into their Golden Years. The tail end of this generational cohort will all be in their Golden Years in less than a decade.
Over the course of the last 30 years, Baby Boomers provided an invaluable market for people intent on selling their businesses. Indeed, Baby Boomers both started and purchased businesses during this time period.
Many Baby Boomers are working to divest their closely held businesses. The dilemma for any person seeking to sell a business today is that the pool of eligible buyers is smaller now than was the case even a few years ago. Not only are Baby Boomers moving into retirement, but the next generational cohort, Generation X, is 40 percent smaller than the Baby Boom generation.
With fewer qualified buyers likely available to purchase a business, a person intent on selling his or her enterprise needs to be more proactive in making a deal. Waiting for a better offer may prove to be an exercise in futility.
Employee Stock Ownership Plan
Some business owners bridle at the idea of selling their ventures to third parties. They’ve worked hard to build their businesses and grimace at the prospect of someone else owning their enterprises.
One alternative a business owner may want to consider when it comes to selling an enterprise is an employee stick ownership plan or ESOP. Through this type of scheme, a business owner can transition ownership of an enterprise to individuals he or she has worked with and trusts. This type of transition (and transaction) keeps a business in something of the “same family” into the future.
Through an ESOP, a new entity is created. The original owner is paid the sales price for the business through profits earned going forward into the future.
Speaking of Employees … Protecting Key Ones in a Third Party Sale
Many business owners have concerns about what will happen to key employees upon a sale of an enterprise. A business owner with some long-term, highly regarded employees may want to take steps to protect their job security in the event of a sale.
Provisions can be included within the sales contract that sets forth protections for key employees. For example, the business buyer can contract to maintain certain employees with the company going forward for a specific time into the future.
Jessica Kane is a professional blogger who focuses on personal finance and other money matters. She currently writes for Checkworks.com, where you can get personal checks and business checks.
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