Around the Web: A Week in Summary
A recent article from Exit Oasis entitled “Who is the Best Buyer?” explains the different types of buyers, their motivations and the importance of carefully considering how each type would fit into your company’s culture and goals.
When it comes to selling your business, there are many different options regarding who to sell it to and how to carry out the sale. In order to make the best decision for your future and the future of your business, you have to know your personal goals as well as the goals and objectives of each type of buyer. The different types of potential buyers you may encounter are:
- A Family Member – With this type of buyer, it’s important to consider that while they may have familiarity with your company and its goals, there is also a heightened risk for personal problems with the buyer should things go wrong in the future and a loss on your end of funds. Make sure the person you pass the business over to is fully qualified and prepared to run the business before making this choice.
- Synergistic Buyer – This type of buyer would be another company that acquires yours. In some way, acquiring your business will benefit the future of their company which could mean a higher value for your business. Sometimes this means cutting out current jobs at your company though, so if your employees’ security matters to you, this may not be the best type of buyer for you.
- A Financial Buyer – The major goal of this type of buyer is a return on their investment. So while they’ll have the capital and expertise to grow your business, they’ll also have a time frame in mind that they’re looking to do that within. This type of buyer may be inclined to ask you to stay on as an employee for a period of time.
- Your Employees – An employee knows your business well, has gained your trust and seemingly makes sense in the succession business. However, it’s important to consider if they have the financial means to buy the company and the skills to run it. Simply put, working at a business and running it require two different skillsets.
- Individual Buyer – This type of buyer is going to be the most interested in and respectful of the business that you have built. As long as they can acquire financing or already possess the funds necessary to purchase your business, this type of buyer could be most likely to work with you towards a smooth transition.
A recent article from Forbes.com entitled “Business Owners, What’s Your Succession Plan?” describes the key components of a successful succession plan and the importance of each of them.
A shocking 47% of business owners over the age of 65 do not have a plan for exiting their business. While there are many reasons why business owners never engage in the creation of a succession plan, it can be detrimental not to have one. Since many business owners have poured their heart and soul into building their company, it’s in the best interest of their business’s future to create a plan before something happens that prevents them from ever making one. Use these key elements to get a succession plan started on the right track:
- Find out what your business is worth for sure. Hiring a CPA to provide an appraisal of your business or a having a valuation performed will give you an accurate value of your company.
- Determine if your goals align more with selling your business to a third party or appointing a successor.
- Enlist the help of trusted advisors and necessary legal aide. Your succession plan is a legal document, and therefore hiring a lawyer and approaching other professionals such as a wealth manager, key team members or an advisory board is prudent.
- Have a tax strategy in place that will protect your interests and provide a smooth transfer of wealth.
- Reflect carefully on what is working and what is not in your business operations. It is best to be proactive rather than reactive when it comes to improving efficiency, profitability and potential problems that could arise during a sale.
Even if you’re one of the 78% of business owners who haven’t created a succession plan because you enjoy running your company, it should still be on your to-do list. Someday, you will exit your business and it’s best to have your wishes for its future in writing if that exit happens to be an involuntary one.
A recent article from Divestopedia entitled “How Goodwill Impacts Business Value” explains what goodwill is and the ways in which it can be leveraged to increase the value of your business.
The value of a business is more than just tangible assets like equipment and machinery. The intangible assets that contribute to the profitability of the business are collectively known as goodwill. These factors such as reputation, brand or trade name recognition, trade secrets and recipes, customer lists and employee skills are valuable because they reduce the risk that a business’s profitability will falter after it changes hands.
While buyers can be hesitant to pay for goodwill because it cannot be seen or touched, as an owner if you can clearly depict the reliability and profitability of the goodwill your business possesses, you can increase the value of your business.