The following case study is based on a true story. In an earlier edition of NAVIX News April 2016 – The Third Time The Charm, we discussed Bill and Billy Smith, who with our help were able to successfully sell their company to a member of their management team. In this edition, we will highlight an inside sale that was not completed after going through our structured exit planning process, and this turned out to be the best outcome for the business owner.
One of the most important decisions to execute a successful exit is to determine the right strategy out of four possible exit strategies. In this case, we determined that selling to an inside buyer was not the right decision due to the following challenges:
- Management Interest – Almost all employees will say that they’d like to be an owner of the company, but prior to committing to a sale to insiders, the business owner must dig a little deeper to determine why the employee has an ownership interest and how deep their interest goes.
- Management Capability – Members of the management team may be good at their jobs, but the key question is how good will they be as business owners.
- Financial Feasibility – Employees rarely have funding in place to buy the company. Instead, the company will need to fund the outgoing owner’s retirement while providing a return the new ownership team. If that math does not work, the sale to insiders will not work.
- Professional Help – It is hard for a business owner to appear impartial on an inside sale, and even harder to convince the buyers that they are getting a fair deal. An outside advisor can help allay those concerns.