There are many reasons why business owners consider exiting a business. Whatever the reason is, our Melbourne accountants will be happy to help you go through the details and assist in facilitating a business sale.
Before making a decision, consider the true reason that’s driving your ambition to sell, what kind of buyer you’re looking for, and whether the timing is right.
You’ve invested all of your time and money into building the business. Now, you’d like to free up your assets and enjoy a well-deserved retirement.
Maybe you have an entrepreneurial spirit. You love the excitement of turning ideas into viable businesses, but you find running a business day-in and day-out to be tedious.
Or you’re ready to start a new chapter for financial or personal reasons. You want to free up your assets for a different investment. Or it’s health-related – your doctor has told you it’s time to reduce the stress in your life.
Your rationale for selling will help you identify the right buyer. Do you want to guarantee the family business remains virtually unchanged? Are you committed to protecting your employees’ futures? Are you more interested in maximising your return on investment?
Setting your priorities first will help guide you through the selling process. Consider potential buyers and the potential pitfalls they could bring.
Some owners want to keep the business in the family. They offer their children, or a child who’s been directly involved in the business, the opportunity to purchase the business.
Sometimes they want to give the business to family members. Or they want to set up a succession plan that enables their children to run the business when they inherit it.
This can be a great opportunity to continue a family legacy. It can also be the cause of heartache and broken relationships.
Even when all parties appear to agree, it is highly recommended to involve a lawyer and a Nobel Thomas Melbourne Accountant, each with M&A expertise, to structure the agreement in a way that’s financially appropriate for all parties involved. They can also help minimise the tax implications.
It’s typical for family-owned businesses to make financial compromises to keep the business within the family. This may include gifting shares to the family, selling the business below market value, or financing the debt over a long time frame to make the transaction viable.
If one family member exits the business while others remain, the business can borrow to purchase the outgoing family member’s shares, and then pay down the debt as the business continues to operate.
Some business owners identify a manager or management team that’s interested in purchasing their business. Others want to sell to their employees, making employee-owners of their entire team.
This idea has intrinsic value, but also comes with potential pitfalls and financial complications. Remember, financial negotiations should always be handled with assistance from lawyers and competent financial advisors to avoid unintended consequences.
Private equity groups use investment capital from individuals and institutions to acquire ownership in businesses. You should know that your business may never look the same if you sell to a private equity firm. Their goal is to maximise their return on investment.
They may make financially driven changes to a business that a seller may not have considered or may not like to see. This could include selling certain assets, taking on large amounts of debt, maximising current cash flow, or combining your business with other similar businesses to gain synergies.These moves could impact the job security of your management team and employees.
Employee Stock Ownership Plans (ESOPs)
ESOPs are qualified retirement plans. They allow business owners to sell some or all of their business stock to the ESOP which allows employees to gain ownership in the business.
A sale to an ESOP can provide significant tax and competitive advantages to the seller, as well as the business.
ESOPs can be complex, and the use of skilled professionals in valuation, legal, benefits administration, and fiduciary responsibilities fields is a must.
A buyer who’s interested in purchasing your business for strategic reasons could be one of your local competitors or another business looking to expand regionally.
The advantage of this arrangement is that the purchaser understands the industry and what’s needed to make your business successful.
Negotiate with your eyes open. The purchaser may rebrand your business and may eliminate overhead redundancies to maximise their return on investment.
Again, think about what why you want to sell your business to help you identify the right buyer. If you can understand their goals and motivations, it can help you strike a deal that’s advantageous to all parties.