These days, buyers may be thin on the ground, so if you want to sell you may have to work around the buyer’s funding options. ANDREW KENT
By Andrew Kent
The main issue for business owners looking to sell their business is that potential buyers cannot obtain the funds they need to pay good prices for good businesses. With this issue unlikely to go away any time soon, it is worth businesses considering other options.
One alternative is to sell part of the business. There are two very different drivers for this – one is to obtain funds through equity rather than debt. The other is to choose semi-retirement rather than full retirement.
Selling part of the business suits those looking to expand a business and wanting to avoid the risks of being over exposed to debt in a financial market that appears to be increasingly expensive and risk averse.
Put simply, an equity holder is with you for good, while the debt provider is with you for the term of the loan and, as has been very publicly demonstrated recently, has no obligation to renew the loan arrangement for another term.
Selling part of the business can also be attractive for those that no longer want to work full time but cannot obtain a decent price for their business due to the financial limitations of the buyer.
By continuing to have an involvement in the business through a long transition period, you can continue to derive an income from the business until the new part owner has sufficient finances to buy out your share of the business.
Another alternative is utilise superannuation funds in some way. For example there are numerous professional practices that have DIY superannuation funds that own the building in which they are located and to whom the business pays rent.
This type of arrangement can continue with the new owner, or alternatively potential business owners can look into how their superannuation may be able to fund key business assets as part of their ongoing arrangements. If you are contemplating this sort of arrangement be sure to get appropriate tax and legal advice.
A third alternative is for potential owners to group together and purchase a business as a combined entity.
This could be achieved by establishing a company before the purchase with the appropriate levels of funding and equity allocation and then having this company buy the target business. Alternatively the levels of equity can be apportioned at the time of purchase.
Perhaps the safest method is to establish the separate entity before purchase, but only arrange the relevant funding and equity agreements once a target business has been agreed upon.
Andrew Kent is a director of BizExchange, an independent marketplace for business for sale or seeking investment. BizExchange has a directory of independent advisers and business brokers and information on valuations
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