4 Ways to Structure the Sale of A Business

For many business owners, there comes a time when they will look to sell their business and there are a number of different ways that this can be done.

1 - Sale of Equity

This is where you transfer the full ownership of the company to another party including all company assets, liabilities and operations. This provides a clean exit and many business owners who are preparing for their retirement might consider this option.

2 - Earn-Out Agreement

This is generally where the buyer provides a lump sum up front and then agrees to make an additional payment if the business meets pre-defined financial targets post sale. Typically the business owner will be continue to play a role within the business for the period of the earn-out which could last for, say, three years.

3 - Private Equity

A private equity sale enables the business owner to sell a proportion of the business, say, 60 – 70%, whilst retaining some equity. The business owner can still keep running the company and benefit from the expertise and capital of the private equity firm who will look to increase the equity value of the company. The founder of the business then benefits a second time when the Private Equity firm sells the company.

4 - Management Buy-Out

This is where the management team raise the funds to buy all or a majority stake in the business. Management Buy-Outs are seen as a form of succession planning with the purchase enabling the founder to step back and the next generation to continue running the business and taking it forward.

Preparation and Timing

For any business owner contemplating the sale of their business it is important that they do not under-estimate the amount of work that may be required to prepare their company for sale. We would suggest that business owners begin the process three to five years before they wish to sell and begin considering putting a team of trusted professionals together.?