Entrepreneurs often ask themselves what their alternatives are for “exiting” their business… Do I already have a succession plan? Is the plan already in place? Family members? Members of the management committee? An outside sale? Do I know the market value of my business?
On the other hand, we can group them into broad families to assess the advantages and disadvantages:
- Internal succession. This is the preferred option of most entrepreneurs. Whether it’s a family member or a managerial employee… this avenue ensures a logical continuation of operations, for customers and suppliers. These cases are not always possible, however – the company typically doesn’t have the space to prepare its succession – there are few governance roles in the company – the shareholder doesn’t always want to make way. The succession doesn’t always have the means to buy. The entrepreneur who wishes to proceed by this route, will end up financing more than if the transaction were to go outside interests. Not everyone can afford to be the banker of the transaction.
- Sale to an individual. For an SME-sized company, this avenue is frequently used. The vendor’s cash-on-closing from the transaction is higher even though there is always a balance of sale remaining. The risk is often more at the operational level, where the seller had defined his role according to his skills and personality – it’s a safe bet that the buyer won’t be the identical replica in terms of his day-to-day role for the company. We’ve heard vendors fear for the future of their company when the buyer wanted to be less operational and more strategic – for them, it was inconceivable to let go the daily aspects!
- Sell to another company. This is the avenue that brings the most consistency in terms of maximizing value, compensation, and continuity. The biggest change comes at the organizational level. The buyer will want to integrate operations and achieve efficiency gains. Current managers may be called upon to change role, location or, in some cases, reposition themselves.
Choosing who you want to sell to may be a preferred option…but with over 90% of businesses having fewer than 50 employees – that choice isn’t always possible…
Most entrepreneurs are very comfortable with the day-to-day or tactical activities of their business. For more strategic activities – buying or selling a business, mergers, or partnerships – many entrepreneurs call on advisors to help them establish their objectives and strategies, and to support them in executing their plan.