So you think that you want to sell your business?

There comes a time in every business owner’s life when the answer to the question, what next? is not immediately obvious. Entrepreneurs like you are entrepreneurs because they are continually looking for the next opportunity to develop the business, and for most of your business life you have made the decision, plunged in and taken the route you knew was right. But sooner or later age, or just other interests, start to cloud the path ahead. In this guest blog Malcolm Murray from Entrepreneurs Hub, who work with business owners to prepare and sell their business and implement growth strategies to build shareholder value, will be outlining the options you have when looking to exit your business.

It’s important to know, when this happens, that you have options and not to be forced down a route that you think is the only one open to you. If you are asking, what are my options for exiting my business, then Entrepreneurs Hub would be happy to work with you to assess what options are open to you. Here are the most common options every business owner should be aware of:

Just Walk Away

There are generally two reactions to this. Some will recoil in shock at the suggestion and others will resignedly shrug believing it to be the only, regrettable, option. In either case I would suggest, don’t be too hasty. It is worth considering, if for no other reason than to resolve in your mind that it is not a route you want to pursue and why – but then, in a very small number of cases, it might actually be the better option.

On the other hand, I recall a conversation I had with a client who had let his management team take over the business. Unfortunately, they had not done well, and it was in decline. The owner felt like he had no option but to just close it down. I was able to convince him to try, knowing that with a small investment the business was still saleable. In the end, we were able to sell the business for significantly more than he would have got by just walking away.

Recruit or Promote

This may initially seem like the ideal compromise. You get to step away a bit, but you retain an interest and you retain control. However, there are two very good reasons why this may not be as ideal as it sounds.

As one of my clients once told me… “I’d never stop thinking about the business, even when I am on holiday it would still be on my mind.” And as his wife keenly observed, “You have to know when you’ve won. You’ve built a great asset portfolio for your family, you don’t need to keep chasing the next deal.”

That said, of course, if you find the right person and have the right mind-set it can work well. But this is a rare combination indeed.

Family

The UK has a proud history of family succession in business, by reputation at least. The reality though is not so clear cut. Some research by the Family Institute some years ago found that only 30% of second-generation businesses survive, this falls to 12% in the third generation and only 4% in the fourth.

You may feel some pressure or desire to keep it in the family, but you need to be honest with yourself and each other. If they don’t have the same passion or the skill for business as you deep down, it is unlikely to end well.

MBO/MBI/EOT

All of these can be excellent options, but all of them require quite a specific set of circumstances to fall into the category of the right option.

- Management Buy Out, where members of your senior team buy the business from you, is a popular option if you have a strong younger management team.

- Employee Ownership Trust, is a fantastically tax-efficient option for owners who are prepared to be paid over a period of time and who want to reward loyal staff.

-Management Buy In, can also be a good option if you can find the right group to come in.

A word of caution applies to any type of sale, but more commonly in these types, if the acquirer of your business needs to borrow heavily to fund the acquisition it will be the lender that determines the value you will receive.

Private Equity

This is a very interesting option with multiple benefits for companies that are successful. But it comes with very specific criteria and conditions that mean it is not suitable for all. Every Private Equity investor is looking for something a bit different depending on their aims and current portfolio, but they all share a common like for businesses with robust and dependable business models, with a clear growth opportunity and usually with profits of at least £500k plus.

The main sticking point with Private Equity for most business owners is the requirement for an extended involvement in the business. However, if you are in a position to commit to this then the rewards can be great.

Trade Sale

By far the most common and often most successful option for all parties. You sell the shares in your business to another business. It allows you to walk away with a fixed value and move on, and it allows the company to benefit from multiple synergies gained by combining the operation of two businesses.

In order to achieve the best value and, crucially, on the best terms, you need to follow a robust and proven process and make sure you leave no stone unturned.

So, What next?

Wherever you are at in your thinking, it would be great to speak with you. Entrepreneurs Hub will give you honest and practical advice – we don’t sell the sparkle, just the truth. Even if you think you have no options left, an independent, third-party, like Entrepreneurs Hub can help you see the alternatives you may not have considered.

Malcolm Murray Director & Co-Founder of Entrepreneurs Hub

Website: https://www.entrepreneurshub.co.uk 

Email: malcolm@entrepreneurshub.co.uk

LinkedIn: linkedin.com/in/malcolmmurray1