Partial sale – the forgotten exit strategy

It’s a hard market out there, but I’m here to remind you… there IS wriggle room.

Partial sale – the forgotten exit strategy

Some baby boomer owners are being confronted with a longer retirement than they expected. And they need to fund it with the sale of a business worth less than they expected. It is not a happy combination.

Why is it that small businesses are not getting the prices they used to?

Some recent research done on Gen-X and Gen-Y job seekers showed that the majority of them would rather be working for themselves. But they can’t afford it.

The theory that the next generation of owners, Gen-X and Gen-Y, simply cannot afford to buy a business is based on the fact that they are living with unprecedented levels of debt as a result of HECS fees and the high cost of home ownership.

These commitments not only make it difficult for them to raise the capital to buy a business, they also make the risk of business ownership and fluctuating cash flows less appealing.

Their other financial restraint (that previous generations did not face), is that their savings are tied up in superannuation, and so cannot be readily called upon for alternative investments such as buying a business.

If this is the case, then how can you get a decent price for your business selling into a market that can’t afford to pay?

The simple answer is to sell your business in instalments. There are a number of ways of structuring this: partnerships, conditional sales, share issues with options, and so forth.

The underlying logic is that you sell them as much of the business as they can afford at the time, and put a structure in place that facilitates further transfer of ownership over time based on particular conditions.

BizExchange facilitates both full and partial sale of businesses enabling companies to list a business for sale or investment. This is not only useful for those that are looking for an exit strategy, it can also assist businesses that are starting out, or growing rapidly and need a capital injection.

This is particularly true of biotech, IT and media companies all of which require significant initial investment.

For example here are a dozen different businesses in Victoria currently seeking investment:

Andrew Kent is a director of BizExchange, an independent marketplace for business for sale or seeking investment. For more Selling Your Business blogs, click here.