Blog

How to sell your business to an employee

July 18, 2016 -  By

handing over of house keys

If you are in a position to sell your business to an employee, or even an outside buyer, it is not so simple to merely put a price tag to the business, unless the person is ponying up a wad of cash and you’re simply walking away. For most situations the selling process is more complicated, and the time frame is more spread out.

Many articles speak about your numbers and the need to show a high, consistent profit with clean and clear financials. This article covers other important considerations.

Answer these 12 points, to help you prepare for making the sale and stepping out of the business.

1. Professional opinion: You have to take a logical approach and you need to know what you want. Know your number and have the business professionally valued as a starting point. If the value is lower than you want, then you have some work to do before you sell.

2. Equipment value: What’s the value of the equipment you’ll be selling, and does the buyer really want to buy it? Are you confident you’ll sell the business in the next 12 months? If not, do you need to upgrade some equipment now?

3. Accounts value: What’s the value of the maintenance accounts if you sold those separately? How much are they worth to the right buyer? This amount is based on a few factors, including contracts, pricing and profitability.

4. Brand: How strong is your brand? Does the phone ring with high-quality leads, regardless of whether you spend money on marketing?

5. Systems, people, culture: Your people plus your systems equals your culture. How strong are your systems? Can someone else come in and run the company using your systems? Is your employee base equally strong? Is there tenure and a strong culture that keeps the employees tied to the business? A strong “yes” to these questions adds value to your business.

6. Timing: When do you want to sell, and what time of year do you want to sell? For some businesses, the time of year has a big impact on the business cash flow.

7. Terms and take back: The more you, as owner, are willing to be the bank, the higher the value you can get for your business, but the more risk you’ll be taking. Generally, you can dictate terms or price, but it’s hard to dictate both.

8. Buyers’/sellers’ plans: What are the sellers’ plans after they sell the business? If the sellers have no plan, then they are less motivated to sign on the dotted line. If the buyer is an employee who needs some ongoing support, or if you’re holding paper in the deal, you need to know the buyer’s plan and believe in that plan.

9. Owner’s transition role and fee: Does the owner need to have a role in the company after the sale? And what will the owner be paid? Getting agreement on this up front is critical to consummate the deal. It’s best to include an “out clause” in this portion of the deal, in case the seller and buyer don’t get along afterwards.

10. Lease of property: Is the buyer leasing the owner’s property and for how long? Don’t make any assumptions. Get this detail ironed out.

11. Leadership team: When Warren Buffet buys a company he’s investing in the leadership team. How strong is yours? Do you have sales, admin and production covered, or are you doing one of these roles as owner? Is there a plan for the buyer to seamlessly take over and fill any holes in your team?

12. Capital: Does the buyer have the working capital to buy the business and to run the business after the sale? Will the bank support the transaction?

Last month I met with two owners wanting to sell to a manager, but the conversation became so muddled because these various topics were being thrown together, so the negotiation stalled. Plus, the owners didn’t know how much money they really wanted, nor did they have an outside opinion on the value.

To be successful, even if you won’t be selling for a decade, you have to remove your emotions and get help. Always be prepared to sell (assuming that’s your end goal), so when the right offer comes along you’re ready to say “yes.”

Photo: iStock.com/Roger Jegg

About the Author:

Jeffrey Scott, MBA, author, specializes in growth and profit maximization in the Green Industry. His expertise is rooted in his personal success, growing his own company into a $10 million enterprise. Now, he facilitates the Leader’s Edge peer group for landscape business owners—members achieve a 27 percent profit increase in their first year. To learn more visit www.GetTheLeadersEdge.com.

Comments are currently closed.