Many entrepreneurs dream of selling and sailing into the sunset. This is an attractive image in the media. But selling a business doesn’t always make financial or economic sense. Once the sale is complete, the previous owner loses cash flow and control and must pay taxes on the profits. What’s left may not have been worth it. Rather than selling and cashing out entirely, entrepreneurs can explore other ways to get the benefits of a sale while owning assets.
Coran Woodmass is the founder of Billion Dollar Exits. This boutique consulting firm helps founders find creative options for removing chips from the table without selling the business or relinquishing control. We also work with clients to grow their business using M&A strategies. Having founded multiple companies in the M&A industry and invested in others, Woodmass understands the nuances of acquisitions and their alternatives.
“Most founders think they have only two options: grow the business or sell,” Woodmass shares, with four more sensible options available to all founders. I’m here.
Selling a business means relinquishing control, but may have to remain with the company for an earn-out period of up to five years. An alternative is to look for creative ways to access liquidity while maintaining control. Lululemon founder Chip Wilson wrote in his book, Stretchy Little Black Pants, about his regrets about selling his business to a private equity firm. He reflected that had he borrowed money from the company and taken the tip off the table, he could have ensured the safety of his family without losing control of his business, which he eventually did. .
In practice, according to Woodmass, this means “borrowing money against business assets and paying it back over a period of time.” The bank gives you cash and you pay it back from future profits. You don’t let go of your stock in the company, but you pay interest. If you have a great business, this can unlock scale without damaging your capital. Suppose you are ready for a challenge and want to grow your business.
Sell and keep control
Woodmass explains: He pointed to his Gravitiq, a UK-based health and wellness company, and gave advice to its team. “The founder sold the first brand to the new business (he was able to withdraw cash personally) and still has majority control and ownership of the new business.” Raised $1 million to help expand and acquire other health and wellness brands. In the world of M&A, we call this a recapitalization.
Skillful use of the company structure, combined with honesty and openness to investors, can also get you the cake and eat it. Find out what’s for sale and why. Think about why you want to sell. For many people, bank cash is more important than a business bank account. It means they can make big personal purchases. Freeing up cash rather than selling stock can help achieve this goal.
buy instead of sell
Could the reasons you want to sell match the benefits you get in return? New realities, new challenges, new teams. Can you buy and put together one or more other businesses to accomplish all these things? Entrepreneurs feeling stagnant or bored may seriously consider this route. Hmm.
“One of our clients did this,” says Woodmass. “After realizing they were looking to sell because they were bored with the business in its current form, they shifted their focus to acquiring other companies as a way to grow.” There are many businesses that are in business and many owners who are thinking of retiring. Can you buy competitors in your industry? Would you like to see people doing the same thing as you in another country, using different technology and an alternative customer base? , a new plan may be found. Something I can’t wait to go with.
invest along the way
If a business is worth selling, it must be profitable. If you are making a profit, you should invest that profit wisely. John Paul DeJora, co-founder of John Paul Mitchell Systems, told the story that he was homeless three times before he became a millionaire. Woodmass explained that DeJora “learned the hard way to make a profit from each business, no matter what the potential return, to invest for the family.” DeJora’s vehicle of choice is now real estate, which typically has tax incentives for entrepreneurs.
You can double your return by investing your profits in other cash flow generating projects. In the future, we may also consider investing in other businesses through angel investments or syndications. In these companies, high returns can yield profits that would have sold. Risk is spread, future payouts can be higher, and he of the investment can maximize his chances of freeing up time in the future should one pay off big.
If you are seriously considering selling your business, clarify the exact reasons. If that’s your primary goal, then obviously there are several other ways you can leverage your business to increase your cash flow. When selling a business, it is ideal to enter negotiations from a strong position. By using debt to grow your business, restructure your assets, acquire other companies, and invest along the way, you’ll be in a stronger position with a better business, resulting in a higher sale price and more money. You can get good terms. With just one of these alternatives to selling you get all the benefits and no drawbacks. You will question why you wanted to sell in the first place.