5 Different Ways to Sell Your Business

Your business is your baby – you have nurtured it over the years, so cutting the apron strings, and selling your business can be tumultuous time – finding the right buyer is just one of the obstacles that you need to navigate. There are various options and structures for your business sale, and an overview of these, and this article helps you to consider the different potential buyers for your business, and the benefits and disadvantages of each:-

1.????Sale to an external vendor.?In this case your buyer could be a competitor, a private equity firm, or a strategic investor. The buyer will typically conduct a due diligence process to evaluate your business and determine an appropriate purchase price, and the payment for your business typically involves a combination of cash paid upfront, earnouts, and deferred consideration. Cash paid upfront is the amount of money that the buyer pays you at closing, earnouts are additional payments that are contingent on the future performance of your business (such as reaching certain revenue or profit targets) and deferred consideration is a portion of the purchase price that is paid over time, which is often referred to as seller financing, as you will receive about half of the value of your business over the next 2-5 years.

Debt financing involves borrowing money from lenders, such as banks or other financial institutions, and paying it back with interest over time. The buyer may use debt financing to cover a portion of the purchase price, which can reduce the amount of equity they need to contribute.

Equity financing involves the buyer raising capital from investors in exchange for ownership in the company. Private equity firms and other investors may be willing to invest in an acquisition if they see potential for growth and a strong management team in place.

Overall, an external sale can provide you with a significant cash pay-out upfront, but may also involve contingencies and future payments based on the performance of your business post sale. It is important for you to have a clear understanding of the terms and conditions of the sale, including the financing structure, to ensure that it meets your financial goals and objectives, be that paying off your mortgage, your kids’ education or that holiday home!

2.????MBO (Management Buyout) An MBO is when your current management team buy your business from you.. This can be a popular choice if you wish to retire or move on from the business without selling to external buyers. The management team is already familiar with the business and its operations, and they are likely to be passionate about its future success. MBOs can also provide a seamless transition for employees and customers, as there are no major changes in leadership or direction.

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In an MBO, the management team typically finances the purchase through a combination of their own equity contributions and external financing. The external financing can come in the form of debt or equity from banks, private equity firms, or other investors. In some cases, you may also agree to provide financing in the form of seller financing, so you will receive payments over time (typically 2-5 years) as the management team pays off the purchase price.

3.????MBI (Management Buy-In) An MBI is similar to an MBO, but instead of the existing management team purchasing the business, an external management team is brought in to take over. This can be an attractive option if you are looking for new ideas and strategies to help grow your business. However, MBIs can be more challenging to execute, as the new management team will need to spend time learning about the business and building relationships with employees, customers, and suppliers.?You may be required to stay on in the business part-time for a number of months as a consultant, to fulfil a thorough handover.

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Funding for an MBI can come from a variety of sources. The management team may contribute their own equity, but they will likely need to seek additional financing from external sources to complete the purchase. External financing can come in the form of debt or equity from banks, private equity firms, or other investors.

In addition to debt and equity financing, the management team may also seek financing from you, the vendor, if you agree to receive payments over time as the management team pays off the purchase price.

4.????BIMBO (Buy-In Management Buyout) A (BIMBO) is a hybrid of MBO and MBI, where the existing management team partners with external investors to purchase the business. This can provide a financial boost to your business post-sale, as well as access to new ideas and expertise. BIMBOs can also provide a good balance between continuity and change, as the existing management team can continue to run the business, while the new investors can bring fresh perspectives and resources to the table.

In a BIMBO, the management team partners with external investors to fund the purchase. The external investors typically provide the majority of the financing, while the management team contributes their own equity and expertise.

5.????VIMBO (Vendor Initiated Management Buyout) A VIMBO is a relatively new concept, where you initiate the MBO process yourself by actively encouraging the management team to take over the business. This can provide a smooth transition for both you and your management team, as everyone is on the same page and working towards the same goal. VIMBOs can also be an attractive option if who want to ensure the continued success of your business and their employees, as well as preserving your legacy.

In a VIMBO, you may also provide financing in the form of seller financing, as you are incentivised to help facilitate the sale and ensure the continued success of the business through an earnout, typically over 1-5 years. The management team may also contribute their own equity and seek external financing from banks or private equity firms.

Employees typically fund an MBO, VIMBO, or BIMBO through a combination of their own savings, contributions from the existing owners, and external financing from banks or private equity firms.

Regardless of the financing structure, it is important for the management team to have a solid business plan and financial projections in place to demonstrate to lenders and investors that the purchase is a sound investment.

Once you decide which is the right potential buyer for your business, you need a good support team, including a solicitor and accountant that have been through the sales process before.?It may take a few months, and you will typically receive your money through a combination of upfront cash payments and ongoing payments over time. In an MBO or BIMBO, you may receive cash payments from the management team or external investors, as well as ongoing payments from the management team as they pay off the purchase price. In a VIMBO, you will probably receive payments from the management team as they take over the business.

Overall, the financing and payment structure of an MBO, VIMBO, or BIMBO can vary depending on the specific circumstances of the sale. It is important for all parties involved to work with experienced professionals, to ensure a successful and fair transaction.

If you want to know more about preparing your business for sale, including maximising its values, and preparing for a relatively quick and easy sale, I recommend you take a look at How to Sell Your Business Baby, which is available on Amazon.

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