When an investor or another company is interested in buying your business, they will make you an offer. If you get to this point, it’s important to make sure you have considered the first two parts of Selling Your Business The Right Way — Your Exit Strategy and Establishing Your Business’ Value. If you receive an offer before you have thought about your exit strategy and established your business’ value, you can get into serious trouble trying to understand your buyout offers.
If you are interested in selling your business and are well prepared with the first two parts, the next thing you need to know is how to determine if your buyout offer is a good one or not. There are several kinds of buyout offers, and some incur more risk than others. You need to be fully aware of what kind of offer you are faced with, how to understand the legal implications of it and whether or not the offer gives you what you need from the sale of your business.
You need to understand the implications of your buyout offers before you decide to sell. There’s no easier way to ruin years of hard work than agreeing to sell your business in a way that ends up not benefiting you. What sounds like a great plan may turn sour in no time, so you need to know what different buyout offers entail and the potential risks from each choice.
The cash offer is the easiest offer to understand, and it’s arguably the offer that incurs the least amount of risk on your return. The buyer offers a certain amount of money, and that’s the exact amount of money that goes into your bank account. There’s no hidden tricks — you agree upon a set value, and you receive that amount of money. While not all buyers will make their offer a cash offer, you should consider the reduced risk as a benefit to this kind of buyout offer.
Some buyers might offer a certain amount of cash, and the rest in stocks. This type of offer can actually be beneficial depending upon the current value of the stock to the ratio of cash that is being offered. A cash and stock offer will require you to do a little bit of work to understand the value of the stock you’re receiving. Stocks can be risky because their value is subject to change. Your stocks may rise in value, giving you more than you accepted them for. They could also fall dramatically, and you could lose the value you sold your business for. You may also have restrictions on when you can sell your stock, which may be problematic if you want the money they’re worth and can’t get it.
Exactly like it sounds, a buyer might offer only stocks in exchange for your company. As mentioned above, stocks can be risky — especially when they are the only form of payment you are accepting for your company’s value. If you want to consider a stock offer, know the risk you are incurring. It’s also best for the stock to be public so that you can sell it whenever you want. you don’t want to get stuck with stock that you can’t turn into money when you need to.
In an owner-financed buyout, the key is keeping control until the buyout is complete. If you are giving new leadership time to pay off the value of your business over a set amount of years until they complete the buyout, you want to make sure that the business continues to make enough money to support those actions. If you lose control before your money has been paid, there’s no guarantee that the business will continue to be profitable under the new leadership, leaving you unpaid and disappointed in what’s become of your company.
Plus, staying involved while new leadership takes over promotes employee retention and success on all levels. It’s a teamwork situation to transition to a new ownership structure.
Even with these three parts of Selling Your Business The Right Way under your belt, you’re not expected to know everything about selling a business. We are. With years of experience promoting production and preparing companies to sell, the Service Excellence business coaches can help you navigate buyout offers and recommend the resources that will help you make your decision. Never feel pressured to make a decision when you don’t understand the full buyout offer!
In fact, in Part Four of the series, we share the most important questions you should ask yourself to evaluate if accepting your buyout offer is the right choice!
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