'Monetize the Value of Your Business'
What Is Your Path to Internal Monetization?
Selling your business to “insiders” is far from easy. When considering your business monetization options, one that frequently comes to mind for many business owners is potentially selling the business to non-family-member insiders including minority shareholders, existing or new management, key employees or even an ESOP (Employee Stock Ownership Plan). This approach can be tricky at best and messy at worst, so it requires serious contemplation, strategy, and good advice to achieve successful results. Developing and implementing a well thought out equity transition strategy is vital to protecting the company from the pitfalls of a poorly structured sale to “insiders”. It must be done well in advance of the transaction with an experienced exit planner.
What Is Your Family’s Legacy?
Family is everything and when you have a family-owned business you have the unique opportunity to create a family legacy through your business exit strategy. However, there are many potential obstacles that surface when dealing with developing and implementing a family-business succession plan which must be considered. Obstacles like matching the right management skills among the family members, identifying who has the true leadership capabilities (may not be a family member), emotional family baggage (emotional intelligence assessments are critical), equitable allocations and distributions of profits/salary, future roles and responsibilities, cash flow to the departing family-members and the ultimate control transition strategy to name a few. Also, since there is so much pressure on the exiting owner, a second set of eyes and ears is helpful to avoiding mistakes. With so many family businesses driven into the ground by the second or third generation, it is reasonable to pause and seek advice.
What Is Your Path to External Monetization?
External monetization, a potential big money-maker, means selling your business to a third-party rather than to an insider or family members. This approach can take many forms including the strategic sale to an industry related company, a financial sale to a private-equity firm or many options in between. A sale to a third-party has the highest potential for a large cash transaction in exchange for the equity of the company. However, the business must be fully prepared prior to showing its hand (and financial statements) to a prospective buyer. And most are not. The list of potential issues is long. If these issues have not been addressed prior to the start of the initial due diligence process (at NDA signing), then it may be too late, and value may be reduced out of the gate. That is why exploring your monetization options, at a high level, at the onset and throughout the exit planning process is so important to making the right decision for you and your business.