The sale of one’s business is rather simple. The seller sells the entire company. But there are many other legal forms for this type of transaction. What are the alternatives and how to negotiate?
Selling your business: the seller’s interests
At what point does one determine that the sale of one’s business in its traditional form is not in the best interest of the transferor? Let’s imagine that an executive is counting on the sale of his company to finance his retirement and live the rest of his life. This can lead him to conduct uninformed negotiations. Without really understanding the value of his structure, he asks for too high a price. This can obviously be detrimental to the conclusion and signing of an agreement.
Another case is when the seller wishes to remain involved in the company. On a daily basis or as a consultant. But if the transmission of knowledge is essential to the success of the project, most buyers need a break at some point. They need to feel that they are truly taking control of the business. Similarly, an entrepreneur may want employees and management to stay in their jobs. This may not fit with the buyer’s idea of the future. If these caveats exist, a traditional sale may not work.
Read also: How to transfer your business?
What are the alternatives to traditional sales?
There are other options for structuring the sale of a business. This is the case with recapitalization, whereby an owner does not sell the entire business but retains partial ownership. Another alternative is a share lease. The owner retains a stake in the business for a defined period of time, so that the buyer has a trial period. If the value of the company increases during this period, the seller increases his liquidity.
The management buyout is another option to consider. The managers become the owners of the company and the original owner benefits from it. The sale of his company via this transaction guarantees the continuity of operations. The buyers understand the structure and are likely to keep the employees.
Read also: Family transmission
What should an owner do before selling his business?
An entrepreneur must anticipate the timeline well before the sales process begins. It’s a 3 to 5 year planning process, much of which is focused on positioning the company in the best light. Buyers expect the company’s financial statements, corporate documents and contracts to be in good shape to perform due diligence. If the prospective buyer discovers a dispute or any difficulty, which the owner cannot explain, it affects a deal in the form of concessions. And that leads to a reduced purchase price or even the end of negotiations.
How a business is sold depends on the wants and needs of the seller and the buyer. Structuring a deal that works for everyone requires creativity, flexibility and a team of knowledgeable professionals. To assist you in the sale of your business, contact Actoria consultants, experts in business transfers for over 25 years.
