Types of Successful Business Transfers

Transferring ownership of a business is a complex and nuanced process, whether it’s selling to another company, transferring to a business partner, or passing it on to the next generation within a family owned firm. Here we explore 9 key strategies for business owners considering a transfer.

Over the years I have worked with many business owners planning to sell their companies at some stage. There is a lot to do which will be covered in another post. Here we review how different what options there are for selling your business, and realising the potential of the wealth you have created.

Types of Business Transfers

1. Sale to Another Company

Transferring your business to another company can be an attractive option if you find the right buyer who values your business appropriately. However, a small sales turnover often makes SMEs much less attractive to larger buyers. However in certain situations when buyers may wish to accumulate market share.

2. Sale to a Business Partner

When one partner wishes to exit the business, selling to another partner can be a viable solution. This type of transfer often involves negotiations to ensure fair valuation and terms. Timing is important, not before the next recession.

3. Transfer to a Family Member

Passing the business to the next generation can ensure continuity and preserve the family legacy. However, this process requires careful planning to address potential conflicts and prepare the next generation for leadership. 64% of businesses in Ireland are family owned, (Dublin City University study 2020).

4. Management Buyout (MBO)

An MBO involves the company’s existing management team purchasing the business. This type of transfer can be advantageous because the buyers already understand the business operations, ensuring a smoother transition.

5. Employee Share Schemes

Companies in Ireland often use various forms of employee share schemes to achieve goals of employee ownership and involvement. Employee Stock Ownership Plans (ESOPs) are popular in the US.

6. Merger

Merging with another company can provide opportunities for growth, access to new markets, and enhanced resources. However, it requires thorough due diligence and planning to ensure a successful integration.

7. Liquidation

In some cases, selling off the company’s assets and liquidating the business might be the only viable option. This typically happens when the business is no longer profitable or viable to continue operating.

8. Franchising

For businesses with a replicable model, franchising can be a way to transfer the business by allowing others to operate under the same brand and business model. This involves setting up a franchise system and providing support to franchisees.

9. Joint Venture

Forming a joint venture with another company can facilitate business transfer by sharing ownership and control. This can help in pooling resources and expertise while maintaining a stake in the business.

Each of these transfer methods has its own set of challenges and benefits, and the right choice depends on the specific circumstances and goals of the business owner.

How to Sell Your Business?

To give you an indication of prevalence, here are rough estimates for the percentage occurrences of each type of business transfer among SMEs:

  • Sale to Another Company: 20%
  • Sale to a Business Partner: 15%
  • Transfer to a Family Member, more prevalent in Europe: 30%
  • Management Buyout (MBO), more prevalent in US : 10%
  • Employee Stock Ownership Plan (ESOP), more prevalent in US: 5%
  • Merger: 5%
  • Acquisition by Private Equity, more prevalent in US: 7%
  • Liquidation: 3%
  • Public Offering (IPO), more prevalent in US: 5%

How to Value a Business in Ireland

Owners of listed public limited company shares may find it easier to obtain a ready-made market price for their shares, but those wanting to value a private company must be more innovative and demonstrate the value. The most popular methods of valuing a company are the times revenue method, the earning multiplier method, the discounted cash-flow method, the book value and the liquidation value. Seek advice from your accountant and other professional advisers.

See article on Family Businesses on this blog. And a short guide to selling a business on this accountants website, HERE.