Selling a business

Knowing Whether to Sell

'These opportunities are like the thickness of a hair. They are barely definable. Throughout life there are moments like this when crucial decisions are made or missed.' Frank Lowy Chairman, Westfield Holdings

As soon as you start, you need to have some idea of where you would like to finish. That is what venture capitalists mean when they talk about 'exit strategies' - the plans you put in place to turn your company into an asset.

You might decide to sell your company in a trade sale to a competitor or a complementary partner. Or you might set your sights on an initial public offering on the sharemarket. In either case, you put a financial value on your company and can finally receive a monetary reward for your hard work.

Some venture capitalists say it's unhealthy for entrepreneurs to focus too early on their exit strategy. After all, the most important thing is to create real value. Sooner or later, though, you and your investors will come to a point where it makes sense to consider going to the sharemarket or selling part or all of your company to another player.

The chances are that your company will not be a candidate for the sharemarket. Only a small proportion of start-up companies ever go public. The overwhelming majority of successful companies realise their value through some form of trade sale, merger or strategic alliance.

If you reach the stage where you consider selling your business, you need to be prepared. This will be the most important financial transaction of your life. It needs careful work to build the relationship that can lead to a successful sale.

Deciding the terms

One of the most common problems at this stage of the business could be your fear of losing control. Remember, though, that you decide the terms of any deal.

You can decide, for instance, to sell on terms that leave you to run the company. Most merger and acquisition agreements involve 'earn-out' agreements under which some of a company's owners have to stay with their company after they sell.

If you choose, you may remain in control of your company's day-to-day operations. If you are worried about the acquirer moving your office or reducing your staff, you should consider ways to maintain your say in the business.

You never know who may be a likely buyer for your company. Chances are that the first company to approach you probably won't be the eventual buyer. One merger specialist, the Corum Group of the US, puts it this way:

'In roughly 75 per cent of cases, in a professionally managed merger process, there is almost always someone willing to pay more and give you a better structure.'

When it comes time to consider an exit, remember that a successful deal is the result of a careful process to find the best possible partner on the best possible terms. This is a process that you must control.

If you take the right approach, you will create significant wealth.

Starting a Business

Growing a Business

Buying a Business