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Getting Your Money Out – 4 Tips For Success

Extracting both yourself and your money from your business tends to be a once-in-a-lifetime experience for many. Even for serial entrepreneurs, the stakes can be high - particularly if some of the payout is conditional, deferred or subject to an earn-out.

This short article provides some tips … and some traps to avoid.

What are the alternative ways of approaching an exit from a business?

Business brokers 

A number of organisations exist to match sellers and buyers. Amongst these are many who simply send out anonymised lists of businesses wanted or for sale. They act as an introducer - a sort of corporate dating agency - and then leave you to it. But you may not be told how long the business you are looking at has been touted around for sale without any success. Others guide the parties through the whole process. Although this service comes at a higher price, it is generally far more valuable.

Professional contacts 

Your own advisers may be able to ask around discreetly and put you in touch with potential buyers. That may save you the cost of an introduction fee.

Word of mouth 

If the business you are looking to sell is in a narrow market sector, the chances are that everyone will know each other already. They may also know someone in the sector who might be looking to buy or who may be open to an approach.

For that reason, keeping in touch with the competition from time to time may serve you well better than regarding them as the enemy. They may be your buyer or, again, act as your unpaid agent. If they have some personal knowledge of you and your business, you may be able to negotiate a better price or other more favourable terms. If this is your situation then putting out some feelers may be the better way forward.

At the same time, if you are referred on to a potential buyer, you do have to ask your competitor the question: "If a potential buyer X is good enough for me to follow up, why didn't you follow it up yourself?”

Management buyout

Presently, with bank funding not as plentiful as it has been in the past, a buyout may be the only viable way forward. It could be third party funded in whole or part; or it could be vendor funded. The latter will take some courage, particularly if it is to be unsecured. But the combinations of part-buyback to withdraw surplus cash, deferral and earn-out mean that it can be a very flexible solution where an outright disposal is not possible.

Tying in the management through requiring them to provide some of the security can help a vendor who is anxious whether he will get fully paid out.

Key to any buyout is the quality of the management team. If you are selling, you should already know its strengths and weaknesses. If your departure will leave too much of a gap to be filled by the existing management, then you could be looking at a BIMBO (buyin- management buyout) where the management team is strengthened by the addition of new personnel buying in at the time. We have acted in situations where this provides an excellent solution to the issues.

For the new management who are buying in, effective due diligence is absolutely essential: relying on warranties alone will not guarantee that the business will run smoothly afterwards. It is also in your interest if you are selling, so that problems are unearthed and addressed the right side of completion.