- Business owners have several ways to sell a company or extract liquidity from it.
- All-cash sales offer the most certainty, but earnouts can be lucrative if a company prospers.
- Leveraged recapitalizations may appeal to clients seeking liquidity but undecided about whether to sell.
As a trusted advisor, you can be of enormous value to entrepreneurial clients wanting to extract liquidity from a privately held business. Among other things, you can help them understand their options, both in terms of the sale itself and the impact on their personal wealth. Business owners typically have a lot of questions. They will appreciate your ability to educate them about the process and provide a steadying hand throughout a pivotal time in their financial lives. Too frequently, individuals simply hold out too long in the hopes of getting a better offer that never comes. So how can we help such clients think through what is right for them?
One of the first topics business owners want to understand is how to structure a sale. What are the basic options and, depending on their circumstances, is an immediate sale even the preferred course of action? Below are three options you may want to explore with your clients, along with the pros and cons of each. Two options involve selling a business, while the third is an interim step should a client need to pull money out of a company in advance of an eventual sale. Different transactions carry varying levels of potential risk and reward, and you can help your client realize that sometimes the offer with adequate proceeds up front may be the best, even if it’s not the highest.