In the best of conditions, the sale of a business is a complex process filled with minefields. In the current financial climate, it can be downright perilous. But it doesn’t have to be. For some small business owners, many of whom are your clients, today’s economy provides an unprecedented opportunity to shore up their exit strategies and receive the maximum value for their most important asset.
Consider the following statistics:
? The U.S. Census Bureau tallied just over 25 million U.S. businesses in 2004, the majority of which were closely held sole-proprietorships, partnerships, or LLCs.
? Over 90% of all businesses in North America are privately owned.
? An estimated 63% of business owners lack a written strategic plan.
These compelling statistics suggest the need for sophisticated strategies and technical expertise to develop and implement exit strategies, estate/wealth preservation plans and strategic plans for the owners of closely held businesses. Unfortunately, concerns about today’s economy, business growth (or lack thereof) and trying to manage day-to-day operations dominate the minds of business owners. Therefore, it is up to you to make sure your business owner clients are preparing for their futures beyond their businesses.
There are essentially two paths that business owners can take when they decide it’s time to transition to the next phase of life: selling the business to an outside party or transferring the business to “insiders,” such as family members or employees.
Several variations of the former should be considered by any business owner weighing his or her options. The first is an outright sale of 100% of the business. While this option could be attractive for certain industries in the current economic climate, it probably would not be a beneficial move for owners in industries that are negatively affected by the economy, for example, real estate, construction, and retail.
The second variation is to sell only a portion of the business’s ownership and retain a portion (either a minority or majority ownership interest). This option could be desirable because it enables business owners to diversify their net worth in an uncertain economic environment, access much-needed capital, and position themselves for growth and the potential future sale of the remaining balance of their company in better times.
More to the point, selling a partial stake of one’s business allows current owners to share future business risks and opportunities with a partner.