Structuring the Sale: Options for Selling Your Business

Selling a business does not come with a set of rules. Some sell it instantly to exit the venture quickly and embark on a new journey, while others take their time to find an able buyer. Most entrepreneurs who are retiring or switching careers do not give much thought to the sale structure until they are ready to pass on the baton. Usually, they do not pay much attention to the way in which the deal will unfold.

However, if they are looking for competent buyers, they need to structure the sale most favourably. It saves them from feeling stuck without getting their returns or getting into a bad deal. So, here is a list of the options for selling a business that can help entrepreneurs structure their sales. It ensures that they get the sale amount without any hassles and that the payment terms are implemented.

How to Build the Sale Structure for Your Business?

Once you have decided to hand over your company to a talented buyer, you need to determine the process of sale. The easiest way to initiate the process is to sell business online, which helps generate enquiries from potential buyers. As the seller, you must screen the enquiries and shortlist qualified candidates to provide them with the non-disclosure document and other business information.

Meanwhile, you must carry out your assessment of the buyer’s financial strength and draft the sale agreement to start the negotiations. However, before you prepare the contract, you need to decide how you wish to approach the sale. The seller can ask for cash on completion of the sale or allow deferred payments to help the buyer pay from the profits made by the business. Also, some entrepreneurs sell their businesses completely while others sell the shares. Let us help you understand the different selling options available to entrepreneurs.

Options for Selling Your Business and Structuring the Deal

Every seller wishes to get the highest amount from the deal to increase their return on investment. However, they also need to consider their tax liability after the sale and the utilisation of the capital received. Thus, they need to plan the sale structure by choosing one of the options mentioned below.

• Asset Sale Deal Structure

The asset sale structure involves selling the tangible and intangible assets of the business individually. The buyer does not take up ownership of the company and buys the assets like plant, equipment, customer database, intellectual property, inventory, goodwill, etc. The company gets closed after the completion of the sale. The contracts of the employees and suppliers get transferred to the buyer. However, this sale incurs higher tax because of the transfer of property and capital gains tax.

• Share Sale Deal Structure

The share sale involves selling the whole business to the buyer, including the assets and liabilities. Buyers usually ask for warranties in this type of sale to protect themselves from risks that might result from the liabilities acquired with the business. It does not require individual sale of assets or transfers, which makes the process easier.

The employee and supplier contracts get transferred automatically in this purchase deal. The sale can be accelerated by opting to sell business online, which expedites the process of finding a suitable buyer.

• Management Buyout Deal Structure

A management buyout is a type of acquisition carried out by the management team. The managers of the business decide to buy the business from the owner by pooling their resources or taking out a loan.

It usually occurs when the management team feels they can operate the business in a better way and increase its profitability rather than handing over the business to an outsider. Most employees, clients and suppliers favour the management buyout because they have to deal with the same people and follow the same policies.

• Succession Planning Deal Structure

If you have an exit plan in mind, you may have considered succession planning. It ensures that your business is handed over to a capable member of your team or a loved one who has the skills to operate it. Succession planning involves training the successor before the outgoing owner moves out. It keeps the business policies and processes intact and gives the seller complete peace of mind about the continuity of their legacy.

• Merger or Acquisition of the Business

It can be the easiest way of selling your business when another entity acquires it or the two businesses merge to become one. It can be completed as an asset or share sale, depending on the deal negotiated between the two parties. However, it is possible only when the two businesses share complimentary products or similar production channels that the buyer can utilise.

Wrapping Up

Selling your business is a big responsibility that needs careful planning. The sales process must be decided after discussing the pros and cons of each option with the accountant and lawyer. It will help you to make an informed decision and enjoy excellent returns.