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Business

Sell the business or partner for growth?

Many business owners believe that selling their business is the only real exit strategy available. Clive Lewis highlights some perfectly viable alternatives.

NZBusiness Editorial Team
NZBusiness Editorial Team
July 17, 2013 4 Mins Read
368

Many business owners believe that selling their business is the only real exit strategy available. Clive Lewis highlights some perfectly viable alternatives.

One of the most difficult decisions a business owner will make is how to maximise the return from the years of hard work put into building his or her business. We hear that selling a house (or public speaking) is amongst life’s most stressful events. However, when you sell a house you know exactly what you must do – sell the house! The stressful part is worrying about how much you will get for it, how best to sell it and what you will do with the money.
A business is another challenge all together. A typical business has involved years of hard work, high emotion and high risk, and no doubt enjoyed both wins and the odd losses.
At some stage, the owner will want to reap the rewards of this work and in most cases this will mean, just like selling a house – getting the best return possible on their investment.
Selling a business is a good option, but for some it is not the best option. Introducing a working partner to share the load, release some capital (and so mitigate risk) and then focusing on continuing to build the business can result in a better outcome both personally and financially. It allows owners to continue to be part of a growing business they have worked to create, plus retain and grow income.

Understand the options
So, is selling your business the best option?
The answer is “possibly”, but only if you are fully aware of the options, and have done your homework on the choices available.
In a recent bank survey of small businesses, over half of respondents favoured a gradual sell down rather than an outright sale. The main reasons given were, “a better path to reducing risk and optimising value”, the ability to “take money off the table” and “a more balancing lifestyle”.
If over half of respondents think this, how come so few actually do it?
The answer turned out to be surprisingly simple: a lack of knowledge on alternatives and the belief that selling the business was the only real exit strategy available.  
Fortunately, more business owners are becoming aware that there are viable alternatives to a full sale to meet their own lifestyle and personal goals. A growing number of business owners are no longer just stepping out; they are managing their exit over time or restructuring the business by bringing in a partner – often with outstanding results compared to simply selling the business.
Platform 1 specialises in turning business owners into business investors by giving them a valuable option to a trade sale or by simply introducing a partner to the business to share the load. The following is an example of this scenario.

Enhancing a valuable property
We were approached by the owner of a company operating as a body corporate secretariat. The owner had grown the business from a standing start to be one of a handful of leading industry players – growing more than 25 percent annually from incorporation.

The problem
Although the owner had a number of staff, it always seems that HE was the business. It did not seem that anyone else could step up or take the load. He was responsible not only for the majority of the revenue, but also the operational side of the business. Although the company was successful, his work/life balance was out of kilter. When he had a holiday, the business suffered.
This was not the original plan. The owner felt locked into the business and was struggling to achieve his financial or personal lifestyle goals. The more the business grew, the harder he worked and the worse his situation became.

The opportunity
A potential business partner who would also work as a general manager was identified. The new GM came on board with “an agreement to agree” on a future partial share purchase.
The new GM’s background and skills were complementary; he also wanted a change in direction and the opportunity to own equity while helping to build a successful and profitable business. As part of the transition process an advisor was also introduced to help with the transition, build shareholder value and help the owner step back from the daily grind.

The result
The GM made a very successful transition into the company, and the business has made a successful transition to a new management and ownership structure.
Today, the business continues to grow. The owner has minimised his administrative duties and is focusing on core business growth opportunities. The balance in his life has been restored and the future made more exciting with a strong business partner working alongside him. The business has doubled in size along with the owner’s value, whilst his income has also grown.
The new GM purchased his first share of equity in March 2012. The company advised recently that they are “delighted and impressed with the outcome” and “this has proved to be an extremely successful commercial arrangement and we are indebted to you for this initiative”.
Each business owner’s circumstances is different. In each case however, when a new executive enters the company they do not immediately buy shares, they simply have “an agreement to agree.” We fully support the owner throughout the transition to ensure a successful process and continued growth.
Platform 1 are experts in business transition and unique in the skills and people we bring in to support business owners.

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NZBusiness Editorial Team
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NZBusiness Editorial Team

NZBusiness is a team effort, with article submissions curated by a small team of professionals under the guidance of Editor David Nothling-Demmer.

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