It’s a challenging but rewarding experience for many business owners to start and build a company. Some businesses need a lot of capital. The sole ownership structure may not be optimal when it comes time to transition leadership. Many business owners choose to sell shares in their companies.
Why you should sell your company’s stock
Many valid reasons exist to sell part or all of a company. The Sale of shares can bring in significant cash that can be used to pay off debts, make charitable donations or invest. This cash can be reinvested in the business to fund expansion. Selling a part of the business allows owners to reduce risk and diversify their assets.
There are many other reasons why business owners might sell their shares. Selling shares gradually can help prepare for succession or transfer ownership to new owners in a manner that reduces tax shock. Selling shares can also result from burnout or a refusal to continue growing the business.
Partial Sale Partial Sale
Deciding whether you want a full or partial sale would be best. Complete sales are relatively simple. The Sale ends your relationship with the company unless you have an employment contract or consulting agreement that continues it.
A complete sale is the best option for owners who want to move on from their business.
They are not the same as partial sales. Partial sales can raise capital, motivate employees or begin ownership transitions. Consider the implications of partial sales before you make a decision. If you sell too much and become a minority investor, you may no longer be able to control–or even influence–decisions.
There are many options for selling
Going Public does not appeal to the majority of business owners. It is expensive to list your company publicly and requires a lot of disclosure, legal and auditing requirements. It is still the best way to raise large amounts of capital or maximize the value of your business.
Selling to large private investors
Institutions do not require companies to be public to invest. Private sales are more straightforward, quicker, and more cost-effective. There are limitations on how much a company can solicit investors before filing with the Securities and Exchange Commission. However, private sales have the same advantages as raising capital in a public market without the disadvantages.
Private sales often include finance for venture capital. Venture funding is when a business sells its shares to venture capitalists for the money needed to expand or grow. In most cases, the company must also seat the investor on the board.
Sell to Smaller Investors
Selling shares to smaller private investors can be both more accessible and more complex than selling to more prominent, sophisticated investors. It’s also easier to select the investors, and often there are pre-existing relationships.
They are less likely to demand compromises of more significant importance from more prominent investors, like board representation or a CEO replacement. Smaller investors are usually less wealthy, and the legal system can be more complex.
Selling to Employees
Another option is to sell shares to your employees. Establishing an Employee Stock Ownership Plan increases employee loyalty and retention and reduces cash compensation requirements for a business. This includes awards and bonuses that would have been paid otherwise. These contributions can be deducted from your taxes. However, it is not practical to sell shares to employees.
Selling a business: Important steps
Here are some tips to help you start if you’re considering a departure.
Decide Your Future
Start by asking yourself one simple question: What do you plan to do with your time, money, and energy once you have sold? This kind of soul-searching is difficult for many people who avoid it. Owners who do not have a clear vision of the future when they enter into negotiations with a prospective buyer are less likely to close the deal. You can update your vision of the future and refer to it whenever needed.
Know what your shareholders want
Next, ask yourself: What do stakeholders want from you? The stakeholders are people who impact the health of your business, such as employees, other owners, investors, or family members. These key people’s goals will determine the future of a business. A smart buyer will understand and agree with these objectives before closing a deal.
Calculate the value of your business
You will then need to determine the value of your business. You may need the help of an accountant, independent analysts, and consultants to complete this process. An entrepreneur’s business has evolved from an idea to an organization that includes employees, intellectual property, and assets.
The entrepreneur considers it priceless. The owner will set a price for the business, and potential buyers may walk away if the price is too high.
You can use a business broker to help you sell your business. They are experienced at finding buyers, handling paperwork, understanding tax laws and other regulations, and they will close the deal faster than an entrepreneur selling their business for the first time.
It is essential to determine the market value of your company before you sell it. Calculating the market value of your company can be done by comparing it to similar businesses that have recently been sold or by calculating all assets.
A broker will focus on the Sale. This allows entrepreneurs to concentrate on running their businesses and maintaining their value.
After you’ve established the fair price, ask for multiple bids. (At least three are recommended). It may be necessary to reconsider the assumptions if the recommendations significantly differ from the owner’s fair value estimate.
A controlling stake in a private business is usually worth more to noncontrolling minor investors than publicly traded companies.
Is it wise to sell my business?
Selling your business can be a good decision depending on several factors. These will vary from company to firm. Selling your business is an intelligent decision if, for example, you no longer want to manage your business or the demands on you are too high. You may also need money if your retirement is near. Most of these reasons have caveats, and they will also depend on other factors.