There often comes a time within the lifecycle of a business when or company when a transition occurs. This usually marks a positive or negative turning point, and sometimes, there is no marked change at all.
There are several forms of company transitions, and we will discuss the major ones.
Sale
An outright sale of the entire business outfit is one of the options available when a company is transitioning. This usually comes with the major benefit of getting the highest possible price from the sale.
However, top managers in the company no longer have any control because selling implies giving both financial and strategic control away to the new buyer to do as they deem fit.
Management Buyout
A management buyout is mostly an internal affair since it involves the management team taking over the business. However, more often than not, the employees may not be financially buoyant enough to buy out the owner. Therefore, the funds that would be used for the buyout would be future profits from the business.
This is why many company owners do not opt for this option. For those who do, keeping a close eye on the going-ons is crucial so that they are certain that the business is staying on track. The upside here is that if there was a solid management team in place prior to the MBO, there’s a good chance that the company would continue to thrive and that the owner would get paid.
Recapitalization
Private equity group recapitalization is an especially practical option if you’re looking for some serious liquidity. Private equity groups are a group of investors who purchase ownership stakes in businesses (either minority or majority stakes) in anticipation of a sizable return.
For recapitalization, the group purchases a majority stake, making them an owner of the business, and then jointly executes strategies with the transitioning owner.
The upside here is that the transitioning owner still maintains a portion of the equity in the company and remains working there. However, they no longer have financial or strategic control of the company.
Employee Stock Ownership Plan (ESOP)
This refers to a qualified retirement plan that has the power to buy company stock. They are highly flexible; however, they have a measure of complexity, so before opting for this option, you would need to have reviewed it carefully.
The upside here is that you get to maintain ownership of the company, and you can sell any number of shares to the ESOP whenever you want. However, you would, of course, need a management team in place to run the company.
These are some of the transition options available, and if you’re at a loss as to which to go for, then a business coach can help. My name is Todd Eppert, and I'm a certified business coach. I’ve worked with business leaders and small businesses for over 20 years in various capacities and undertaking the various tasks that come along. Company transition is a crucial affair, and I would love to harness my wealth of knowledge to make the process a smooth one.
