Recurring Revenue

It takes years to build a company. It takes a lot of effort to get it started and running successfully. For most owners, it’s their baby.

Selling a business may happen for many reasons. But many a times, people decide to cash out of their business by selling it off. A wrong decision or approach could lead to potential loss. Hence, it is wise to consider the pros and cons of selling a company for cash. Many out there will offer tips on how to sell your company. Along with getting the paperwork in proper place, you have to get your business valued. When valuing a business for sale, there are plenty of points to consider. Get professional help and get it done by multiple agencies that specialize in business valuation.

While it is important that you discuss with your family before putting it up, if they express no desire to take it over, it is best to consider an outright sale. There are two ways in which a business can be cashed out.

  1. Selling the company’s assets – Those buying the company’s assets are getting the company’s tangible assets along with the intangibles, such as trademarks, brand name and goodwill, and as a result are generally protected against prior claims against the business. If someone files a legal suit against the company for a reason, it is the prior owner who will have to take responsibility for it. Most small, closely held company’s sale is structured as asset sale.
  2. Selling the business though stocks or shares – This kind of sale benefits the seller. The buyers are buying the company itself as such and hence are liable to any claims made against it.

When it comes to selling your business also consider selling it to the manager. A company that has a well-established knowledgeable and trusted management team that is interested in continuing the business usually adopts this route. The advantage with this method is that there is very little time spent transferring knowledge as the management team is already in the know-how of most functional and other information. Additionally, you don’t need to scout for a buyer. But the price you may get may be lower than what you would get in the market.

Another approach is to sell the business through an Employee Stock-Ownership Plan (ESOP). The process may be a little complex, but it has its advantages. This option allows the owner to remain a part of the company while pulling out money. This also provides a way to reward employees and give them a long term incentive to hard work and loyalty. An independent trust set up by the company buys the stocks of the owner at a price determined by the independent evaluator. The stocks remain with the trust as long as the employee is working with the company. On retirement or leaving the company, the employee can sell it back to the company at the current market value.

Those wishing to sell the business gradually without losing control can restructure the finances using instruments such as stock preferred stock or debt.