This last week, I was honored to present on a panel that addressed the “Silver Tsunami” that is coming in that baby boomer business owners who have made no plans for the succession of their businesses are either being forced to close operations or to enter into a sales transaction where the terms are less than ideal. As of the date of this article, the American Investment Council is reporting that 85% of all private equity (PE) deals are focused on small business. A small business is defined as having fewer than 500 employees. PE deals account for about 33% of all corporate sales. Of these deals, not all of them are acquisitions, but some are investments. These investments occur by the PE firm investing in growth capital, which means that an owner can stay involved in the company and potentially require the business owners to participate in a new entity. Of course, this means that there are specific deal terms that need to be made. If the deal is structured properly, it can lead to beneficial tax consequences for both the seller and the buyer.

Many business owners approached me and said, “How do I get me a private equity deal?” I responded by advising that a business owner needs to know and understand their financial statements to at least get a ballpark view of how a buyer will perceive their company. Further, a business owner must get their compliance “ducks in a row.” Operations must be compliant with employment laws and corporate governance covenants. The business must be in compliance with all of its third-party creditors. I often recommend that businesses hire a valuation consultant to value the business for different reasons (i.e. stock option plans, phantom stock plans, estate taxes, stock grants etc.). This is the type of preparation that a business needs if the business owner is contemplating any type of transaction. Whether the business owner wants a sale to a competitor or a sale to a family member, the analysis needs to be done to get the best outcome. We want to avoid the outcome where the business is just shut down.

If you are thinking about selling your business in the immediate future, or you would like assistance in planning for succession, we can help you with this. The terms of all these transactions should be negotiated so that we can avoid a distress sale. Contact our office for assistance.