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If I am Considering Sale of My Business as My Succession Option, What are My Best Options?
January 10, 2008
There are two general classes of buyers for a business: internal and external. Internal buyers would be one or more key managers who could provide succession leadership. External buyers would be third parties including of course complementary vendors.
Your Internal Options:
By having the capability to lead and to generate the cash flow from the business to purchase a portion or all of the business, key managers can qualify as a Buy-in or Buy-out Succession Bridgesm. However, rarely do key managers have the immediate cash or credit for outright purchase because, if they did, in most cases they would have opted out earlier to do their own thing. The motivation for you to consider a key manager with a buy-in, or even a buy-you-out option, is that their services comprise a significant part of the business value. They respect the existing culture and family members, and represent greater cash flow to the seller from an incremental sale versus an outright sale.
External Options:
A good external buyer is one who has no prior management or ownership connection with your business and who are financially and culturally compatible.
Financial compatibility is simple: we don’t know you, so fork over the cash. The cultural compatibility is more challenging because, if management is going to bust their humps to optimize value, they will want to be involved to some degree in the selection of who will be their next boss. This is an important subject to the external buyers too because even if you have a unique process, product or franchise the new buyers will be relying upon the existing managers and employees to help them realize the desired return on their investment. Many businesses have sold for less money to buyers who had convinced everyone that they planned to maintain the management culture and loyal employees. Of course, some changes were made but as opposed to moving all management decisions out of town, remaining locally owned and operated was a clear advantage for the purchaser.
There is no security in the assumption that you will have successors or that your successors can seal the deal. The only security is acknowledgement that the sale of a business is a viable succession option, and engaging in the succession planning process will position you to have options in regards to your disposition decision.
Posted by Loyd Rawls on January 10, 2008 | Comments (0)
