With this type of exit, an owner sells their entire business to a new owner or company. All funds for the business purchase are received upon closing of the deal, with a short hand-over period post-closing. A complete exit will provide the full amount of purchase price immediately to the exiting owner, but generally at a discounted amount of the full business valuation.
The source of the funds will either be liquidity the buyer holds, or, if the free cashflow from your business is strong enough, through a leveraged buyout and borrowing of the funds from a lender. The business will generally also need to be unencumbered with debt, and any debt on the books needs to be closed out a head of time, or at closing out from the proceeds of the sale.
This option is best for business owners who are looking to completely leave a particular space, possibly with the goal of retirement.
Seller financing generally involves a purchase structure that includes a portion of cash due immediately at closing, and the remaining amount paid out to the exiting owner from the business profits over a set time period post-closing. Seller financing will typically yield the best multiple on the business compared to a complete exit, as some of the buyer’s risk is transferred to the exiting owner.
This could be in the form of an earn-out, meaning you are entitled to a portion of the funds, but only if you continue working within the business after the sale. The contingency could also be in the form of revenue or profits from specific clients or products that the buyer is acquiring. An example of this sort of exit could be the following: your business is valued at $1 Million USD. You receive $250,000 (25%) of the value upon closing. You receive an additional 25% after you remain with the firm for 24 months, and the remaining 50% is paid out as a percentage of the total revenue remaining from your previous clients after 24 months.
Seller financing may be the only option in the cases of certain types of businesses, where typical lenders are not comfortable with the industry or you are showing significant losses in one of the past three years.
A merger will typically take place with a strategic buyer who has a similar or complementary existing business. The whole of both businesses is greater than the sum of the individual parts.
A merger may include some form of cash paid out at closing, with the remaining value of the sale being converted in equity in the purchasing business. Say your business is valued at $1 Million USD, and the business acquiring yours carries a value of $5 Million USD. You might receive 50% of the purchase price upon closing. The remaining $500k from the purchase price is swapped for 10% equity in the new company. You will likely need to stay on in a role with the new company, earning a salary for that position.
A merger may be a great option for those who would need to look at seller financing, and have an interest continuing to work within the new company after closing the sale. Depending on the profitability of the merging company, 10% long-term of a thriving company could be worth considerably more than a one-time payout from the sale.
Rather than selling your entire business and exiting completely, moving into a role of absentee owner might be the right decision.
With this option, you effectively promote or hire someone into your existing business and provide them the role of President, CEO or Managing Director. They are responsible for managing your business, and are generally compensated with some form of “skin in the game” (either with profit sharing or actual equity in the business they earn). If your business is an owner/operator structure, building your business up the point that you have someone else managing the day to day for you is often a critical step towards getting the strongest multiple when looking for a complete exit and sale of the business.
At the end of the day, the market for those interested in purchasing a job (i.e. operating your business you are selling) is significantly lower than those interested in buying a business that already has a partially or full absentee owner.
Although this type of partial exit will not put extra money immediately in your pocket, if done properly, should result in you having passive income from your own business. That translates to more time for other things in life, and for a better position to build towards a full exit in the future.
We’ll meet with you to understand your business and the current state that it’s in. Reviewing your financial statements (if you have them), the structure of your business, your current profitability, and what your role is within your own company, we’ll lean in to help you define what your best-case exit could look like, and what exit strategy we recommend.
With our partner firm, Bender Accounting, we’ll take on the task of cleaning up your books, financials and tax returns, so that they are in great shape and exactly what potential buyers are looking for. We’ll also continue to manage your company’s financials for the next 12-18 months, ensuring that a trailing 12 months looks as strong as possible.
We’ll come up with a strategy that’s tailored to your specific business and current setup. The goal is to increase the value of your business when you are ready to exit, all of which needs to start 12-18 months before it’s time to list. We’ll provide monthly coaching and work with you to make sure we’re moving your business into the best posture possible when it’s time to exit.
After we’ve had time to clean-up and grow your business, it’s time to either hand the reins over to your new President, or time to list the business for sale. We have trusted business brokers we work with to get your business listed (at a record high valuation now) and promoted. We’ll continue to work with you during the sale process, to provide context and advice on possible offers and to see the exit through to it’s conclusion.
Justin is originally from Canada but lived most of his adult life in Germany before moving to Tampa Bay in 2017. Originally starting his career in film studies, Justin started working on project managing creative projects for a defense contractor in Stuttgart, Germany after graduating.
Upon completing his MBA in 2015, he then went on to work with TeamViewer AG in digital marketing, leading teams of marketers for content marketing, performance marketing and demand generation. In 2019 Justin began his journey of an entrepreneur by starting his own marketing agency, which he successfully grew to a team of 10 by 2021. In early 2022 (after only 30 months) he exited that business with a 5x multiple, selling to a larger creative agency.
Justin is now an investor in other small businesses, as well as a consultant for owners who are looking to increase the value of their businesses and market it for a potential exit.
Want an opinion on what your business is likely worth if you were going to try and exit Today?
Get in touch with JURI Consulting. We’ll reach out to ask you some questions about your business, and request a few documents we’ll need to put an analysis together.
We’ll provide you with a free estimate on what we think your business is currently worth in a possible exit.