Transitioning a business to new owners means securing money. But traditional bank financing is only one option.
Three local experts yesterday spoke at the Hagley Soda House outside Wilmington for an event sponsored by the Small Business Development Center and Delaware Business Times. The speakers highlighted alternative financing options for small business owners looking to sell, whether the buyer is a family member, friend or stranger.
William Santora, founding director of Santora CPA Group, discussed Employee Stock Ownership Plans, which function like a profit-sharing plans. The difference is that assets are held in employer stock rather than cash or marketable securities.
His conclusion: "Proceed with caution. I've only seen one locally. It worked well for a while and then 2007 hit and the value of the company went down substantially."
Ken Jones, managing partner at Boathouse Capital, gave insights on a type of private equity firm called a Small Business Investment Company (SBIC). Licensed by the U.S. Small Business Administration, these firms provide small businesses with equity and debt financing with more forgiving underwriting requirements than other lenders.
Tim Cole P.E., founding owner of Applied Control Engineering, took a broader approach to thinking about selling your business. He broke down some of the questions business owners should ask themselves before making the deal:
- Why did you form the business in the first place?
- Why are you selling today?
- How do you want to be remembered?
- What do you owe to society that provided the business/legal environment?
Cole has asked himself these questions as he prepares to retire after decades in the business.
"I'm not the first partner to leave. I'm the last to leave. To the guy's I'm selling to, I can't control what they do. I'm asking them to pay it forward," Cole said.