Do Business Well

The net worth of most small business owners, is usually divided between the equity in their home and the net worth of their company. After selling a valuable business, it’s usually best to assemble a diversified portfolio. You may want to invest in an assortment of blue-chip stocks, tax-free municipal bonds, and treasury bills. These assets plus your house should provide excellent security into old age, and for your children as well.

But what is security if you no longer have any purpose in life? Common to most entrepreneurs is a love of what they do. Below, we’ll explore a few options that will allow you to have it both ways.

You could sell just a portion of your business to raise cash for other investments. You’ll want to make certain in so doing that you maintain control. As I heard stated recently, “One of the best parts of being your own boss is that you can’t fire you.” I’ve also heard many horror stories of owners who sold a controlling interest to supposedly benevolent investors, only to have these friends (or even family) kick them out of their own company.

Here are various ways to sell a portion of your business:

1. Private stock offering. This is generally the cleanest, easiest approach to raising cash without giving up control. Within certain limitations you can offer shares in your company to sophisticated investors or those who could be expected to know about your business. These could be close friends, vendors, customers, or employees. Or, being careful to follow the legal complexities, you could offer stock to sophisticated members of the public.
2. One word of caution. Limit this sale to the least number of people possible. If you want to raise $250,000, try to do so with five individuals putting up $50,000 each. You could have twenty-five at $10,000 each, but then you have the potential of twenty-five phone calls per month from partners “wondering how things are going.”
3. Taking on one or more partners. Whether this is done as a formal partnership or as a stock offering, the difference is that you’ll have active participation. This approach offers the advantage of reducing your personal commitment of time and energy. It brings with it the disadvantage of more mouths to feed. Working partners expect to get paid. Inactive stockholders may expect dividends, but can be made to see that retained earnings may be better than cash dividends. Another potential negative is that a partner represents one more person to get along with. Going public. It’s not common for companies with fewer than ten employees to go public. That doesn’t mean it’s impossible. There are two methods that can work for you.
4. The penny stock market can provide you with a vehicle for a public offering. The cost is high, but the reward can be great. Beware of the many shady individuals who inhabit this arena. Check with a broker/underwriter for more information.
5. The second approach is to purchase the shell of a public company, and merge your company into it. There are always plenty of companies that have ceased any active enterprise, but are maintained as corporate entities for just such a purpose. There are many major potential pitfalls to this approach, so you’d be well advised to use a lawyer with plenty of depth in this area. You’ll also want to find one who can provide you with a long list of personal recommendations.
6. Creating an ESOP. An ESOP can be used to sell your entire company. However, most folks use the ESOP as a method for sellingjust a part. You sell 30 percent of your company to your employees. You and they get a big tax benefit. They work harder because they own a piece of the pie. Everybody is a winner.
7. There are stories of owners who haven’t had great experiences with ESOP’s. In general, though, this approach is an attractive one for those wishing to get some cash out of their business.
8. Selling off a part of your business. Do you have three stores? Sell one! Is there an ethnic grocery store attached to your restaurant? Sell one or the other.

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