4 alternatives to selling your business

Many entrepreneurs dream of selling and sailing into the sunset, an image glorified in the media. But selling a business doesn't always make financial or economic sense. Upon completion of a sale, the previous owner loses cash flow and control and must pay tax on their gain. What remains may not have been worth it. Rather than selling and cashing out completely, entrepreneurs can explore other ways to gain the benefits of the sale while retaining the asset.

Coran Woodmass is the founder of Billion Dollar Exits, a consulting firm that helps founders uncover creative options for taking chips off the table without selling their business or giving up control. They also work with their clients to scale their business using mergers and acquisitions strategies. Having founded several companies in the M&A space and invested in others, Woodmass understands the nuances of acquisition and its alternatives.

"Most founders believe there are only two options: grow their business or sell," but Woodmass shares four alternatives available to every founder that might make more sense.

Leveraged debt

Selling a business means you give up control, but you may be required to stay for an earn-out period, which can be up to five years. An alternative to this is to explore creative ways to access liquidity while maintaining control. In his book, Stretchy Little Black Pants, Lululemon founder Chip Wilson wrote about his regret at selling his business to a private equity firm. He thinks that if he had used the debt against the company to take chips off the table, he would have given his family security without losing control of the company, which eventually happened.

>

In practice, Woodmass explains, this means "borrowing money secured by your business assets, which you repay over a period of time." The bank gives you money and you pay it back from future profits. You are not giving up shares of the company, but you are paying an interest rate. If you are on a large business, this could unlock the scale without hurting your capital; assuming you're up for the challenge and want to grow your business.

Sell ​​and keep control

"Selling doesn't necessarily mean giving up control," Woodmass explained. He pointed to Gravitiq, a UK-based health and wellness company, whose team he advises. "The founders sold their first brand to their new business (allowing them to cash out personally) and still have majority control and ownership of the new business." They've since raised $55 million from investors to help them expand and acquire other health and wellness brands. In the M&A world, this is called recapitalization.

By making smart use of corporate structure, combined with honesty and openness with investors, you can have your cake and eat it too. Determine what is for sale and why. Think about why you want to sell. For many, money from their bank rather than their business bank account is essential; this means they can make large personal purchases. It may be that freeing up cash rather than selling stocks helps achieve this goal.

4 alternatives to sell your business

getty

Buying instead of selling

Could it be that the reasons you want to sell match the benefits of buying instead? A new reality, a new challenge, a new team. Could you buy one or more other companies and group them together to do all of these things? An entrepreneur who feels stagnant or bored might seriously consider this route.

"One of our clients did this," Woodmass said. "They focused on acquiring other businesses as a way to grow, after realizing they were trying to sell because they were bored with their business in its current form." There are a lot of businesses for sale, there are a lot of owners looking to retire. In your industry, could you buy out your competitors? Could you envision people doing the same thing as you in another country, with different technology or alternative clientele? Once ...