What Transaction Options are Available to Business Owners?

There are four transaction options available to business owners depending upon how ready they are financially and mentally to sell all or some of their business. Our readiness matrix helps owners determine which of four options may be best for them.   Below we detail the rationale of each transaction type.

Gift to Family or Management Buyout Ownership (option 1)

Often owners are ready to retire but wish to see their legacy carried on by a group that understands what it is.  This group is most often found among family members in the business or key employees that manage it.  If it is family, owners may want to consider gifting the business to them in which case they should secure the services of a good estate planning attorney and the advice of a financial planner.  If it is key employees, the owner should consider an ESOP or a straight buyout of 100% or fewer of the interest in the firm.  There are many lenders who are willing to fund either vehicle.

Advantages of option 1

  • No need for outside equity
  • Their legacy will remain in good hands
  • They can provide good opportunities for the people important in their life

Selling 100% of  an Ownership Position (option 2)

For those owners who are both financially and mentally ready to exit their businesses and have no one or group they wish to sell to, this is the best option.  Sometimes after years of building a business, they just want to spend more time with the grandkids without having to ever check their email and offload the risk of owning a business in the later stages of life.  For these owners, there are a multitude of good buyers ranging from Private Equity Groups to Strategic Buyers to high net worth individuals seeking an opportunity.

Advantages of option 2

  • Financial Opportunity
  • Other Aspirations
  • Free time
  • Reduce stress
  • Reduce Financial Risk

Majority Recapitalization (option 3)

Selling a majority share of the business allows an owner to take a large chunk of money off the table, thereby reducing risk close to retirement, while continuing to operate the business.  They also may secure a reliable partner who can assist them in building the business to make it even more valuable when they do retire and sell their remaining interest.  This “second bite” of the apple can often be as profitable as the initial recapitalization  This option is also of benefit to owners who struggle with creating a life plan for post-sale, struggling to answer the question: What am I going to do?

Advantages of option 3

  • Not ready to retire
  • Desire to lead growth
  • Financial Opportunity
  • Reduce financial risk
  • Buyout other shareholders
  • Maximize value

Minority Recapitalization (option 4)

Some owners find themselves in a position where they have grander ambitions to grow the business but don’t have sufficient capital to do so.  For them, a minority recapitalization where they sell a minority interest in the business to an outside group would be a good alternative.  Their spouse would be happy that they can finally see a liquid benefit, and the owner can continue to build their dream by securing funding of growth initiatives, all the while maintaining control of the business.  Private Equity Groups are eager to partner with owners in this way.

Advantages of option 4

  • Secure capital for growth
  • Will not cede control
  • Not ready to retire
  • Desire to lead growth
  • Reduce financial risk
  • Buyout other shareholders

No matter where owners find themselves on Seller Readiness Matrix, there is an exit option available to them.  Call VR Business Sales of New Haven today to discuss these options.