By: Taylor Bauer
Selling a business isn’t simple, but most entrepreneurs have more options than they realize. Taking the wrong approach could have serious financial consequences for both the entrepreneur and the company. So it pays to know the pros and cons of several ways to cash out and to think carefully about which is the right fit for your business and you. An outright sale is probably the simplest way to exit a business. This approach makes sense when an owner’s family members have no interest in taking it over or when the owner can’t figure out how to take the company to the next level or meet challenges that may have arisen.
There are two ways to cash out: An owner can sell the company’s assets outright, or he can sell his stock in the company (or units if it is a limited-liability company). Stock sales tend to benefit the seller, while asset sales are more beneficial to the buyer. Asset buyers are getting the company’s physical equipment, facilities and customers, as well as intangibles such as trademarks and goodwill, and as a result are generally protected against prior claims against the business. For example, the previous owners would most likely be responsible if an environmental claim were made against their former property or if an employee hired on their watch filed some sort of lawsuit.
Stock purchasers, in contrast, are buying the company itself and thus are exposed to all of its potential problems. This is why most sales of small, closely-held businesses are structured as asset sales. Selling the business to its managers is also a popular option. An owner might go this route when the company has a trusted, entrepreneurial management team that wants to carry on the business. The biggest advantage of this strategy is that the owner doesn’t have to spend time trying to charm a buyer. The trade-off for an easier sale is that the price may be lower than what an outsider would pay.
While there are many options for business owners who want to cash out, the best way depends on the nature and health of the business and the owner’s intentions to stay with the company or move on. Understanding all of the options, and getting good advice from experienced business professionals, can make it easier to pursue the route that’s best for all involved.
The best part of it all is that if the selling process is seeming too much, or maybe even something that you cannot handle, the team at SA Capital Partners is here to help. From the moment you think a sale might be a good fit, find out how to go about the process with SA Capital Partners, who take you from the initial appraisal to the final sale agreement. Reach out to SA Capital Partners today to find the best path to selling your small business in the lower middle market!
About SA Capital Partners:
SA Capital Partners is an innovative financial services firm that specializes in mergers & acquisitions advisory and capital raising for lower middle market businesses. We aspire to give all the tools necessary to complete any transaction. SA Capital Partner’s financial services industry specialists provide comprehensive, integrated solutions to banking transactions. Our breadth of services and industry knowledge allow us to understand each client’s unique business needs. Our goal is to make all financial services available to every small business.