Every entrepreneur dreams of making it big someday. Creating businesses with enduring value and profitable returns. But when it comes to cashing in, how exactly does that happen. Here are some well known, lesser known, and rarely considered options.
1. Well known: sell your company
Build a strong company and then sell it. That’s the easiest way to make an exit. This is not, however, a decision you make one day and execute the next. Making an exit and maximizing the value takes careful planning. Remember some of the follow ideas if you are considering an exit in the next year or two:
- Maximize profit by avoiding any non-strategic spends – you want your bottom line and your margins to look as strong as possible in the period leading up to a potential sale.
- Get your records and financials in order – buyers will want to conduct due diligence and the better you organize yourself, the better their opinion will be of your company.
- Know who would make for a good buyer – strategic bidders are those that can realize the most synergies from acquiring your company. Synergies come from redundancies and overlaps with the acquirer’s existing business. They can afford to pay you the highest price.
2. Lesser known: go public
Once a company reaches a certain size and has a fairly well defined trajectory, it’s possible to invite other investors to participate in the growth. There are two reasons for going public: first, to access large pools of capital and second, to monetize a portion of the founder’s investment. Often, you can achieve both.
Going public is not an inexpensive whim. You are looking at millions of dollars for lawyers, underwriters, and auditors. But if we are talking about a business that has the potential to be a $100 million company or more, then being public offers a lot of advantage including: liquidity for existing shareholders, ready source of incremental capital, and generally speaking a lower cost of capital.
3. Rarely considered: raise debt
I call this a synthetic sale because you don’t really sell the business at all. But once your business has grown successfully and is generating a stable level of profits, you can pull out some of your equity by raising debt. Think of it as virtually selling your business.
One of the companies I’m involved with operates a ferry service. The ferry itself is old and is under contract with the government. The business consistently generates strong operating cash flow and has done so for nearly a half a century. However, because the contract is subject to renewal and because of the age of the vessel, we were unable to attract a strategic bidder and the company itself was too small to spin off as a separate public entity.
So, we were able to find a lender who was willing to provide debt financing at very reasonable rates (sub 5%) based on a multiple of EBITDA (approximately 3X). This monetized a significant portion of the equity we had in this company and freed up this value to invest elsewhere.
Want to learn more about financing strategy? Well you are in luck, we have a course on financing strategies. If you’d like to discuss financing deals more, Blair would love to hear from you as he is actively looking for opportunities to provide equity and debt financing for small and mid-size companies with deal sizes of $1 -$50 million in size. Contact Blair.
Once again Mr. Cook delivered an excellent presentation. I enjoyed taking the course, learned a lot of things and saw perspectives/ thoughtful insights from the Mr. Cook. Well done sir! - Richard Dandan (Senior Accounting Specialist at National Food Authority)
I liked how the instructor clearly defined the sources of financing. Also, the case study was insightful. Overall, case studies help explain the concepts much better than reviewing slides. - Devin Scaglione (Senior Financial Analyst at GlobeNet.)