Many Ways to Buy & Sell

THERE ARE MANY WAYS TO BUY A
COMPANY AND MANY WAYS TO SELL ONE
By Stephen J. Kerr

Some of our clients have a hard time keeping their interest level high in their company once they have decided to sell the business. It is such a tough decision for most entrepreneurs to let go and sever their emotional ties to their company, that once those ties are severed they stop doing the important things that make their company desirable to others. They don't go out and hire young new managers, start ambitious marketing plans or make tough financial decisions. They think, "Let the new guys put their stamp on things and clean up this mess".

Ah, but what if the new guys want that entrepreneur to stay on and run things for a few years, or longer?

Often the sellers of a business do not take in consideration the possibility that people who buy businesses often have no idea how to make their acquisitions run. They may be great business managers, Wall Street wizards and knowledgeable about your industry ... but they may have no intention of working at your company and running it themselves. Face it, if they knew as much about your business as you do, they wouldn't be buying your business, they would be starting up their own.

And often the greatest asset that a small company has is its entrepreneur. People who buy companies, especially creative companies, worry greatly about losing the spark, the creative juice that makes that company successful and attractive as an acquisition in the first place.

Business owners sell part or all of their companies because: they are worn out, ill, need capital to grow, need money for personal reasons, want a larger corporate umbrella, have disagreements with partners or family, or the business has just gotten too big for them.

Investors buy companies to: buy themselves a job, consolidate a market position, to get into new markets, to make money, to capture special technology and/or personnel, to grow their company and put excess profits to work, or just to expand their own horizons.

Notice that the only place where the seller's desire to leave the business and the buyer's motivation to own the business coincide are where the buyer/investor wants to buy themselves a job. All the other reasons for doing the transaction are financial.

A lot more companies would be traded if the entrepreneurs knew that they could cash in on the value built up in their company without disturbing their job, their employees, their business or their vision.

If investors are sensitive to those four criteria above, and know how to communicate that to the potential seller, they could purchase most any company that they wish (for a fair price of course).

Often, the owner of a business is not prepared to sell the company at the time the opportunity arises, and they probably have not been thinking about it. So their first reaction is usually to reject the suitor. But what if someone came up to your door and said, "Hi, I would like to give you $500,000 for a 50% share in your company. You continue to run it, use some of the money to grow the business and the only thing I ask is that you consult with me before making big decisions, and when it comes time to sell it, you give me the first chance to buy the 50% that I don't own." Given proper analysis on your part and good legal documentation to protect your investment, you may be smart in taking this investor up on his offer.

Buying or selling a company need not be a catastrophic event for the parties or the business - if handled properly. There are ways to structure a multi-year transfer of stock which can allow a business owner to pull out some of the equity he/she has built up in the business now and transfer blocks of the company later for a higher value.

There are as many ways to structure a business transfer as there are companies. If worries of losing your job as owner and visionary, losing your employees, your clients or future profits are what's holding you up - you may be surprised at just how many investors are out there with cash who want a piece of your dream and agree that you are the best and only person to run your company and fulfill your dreams ... and theirs.