Stephen Fanjoy

According to Business Brokerage Press, only one out of every five small businesses actively for sale will be sold. Even fewer will be sold under terms the seller would describe as attractive.

Nonetheless, well planned and executed, the sale of your business can turn into one of the most exciting and profitable transactions of your entrepreneurial career. An inherently complex, emotional, high-stakes challenge, an exit calls for cool heads familiar with the territory you are about to tread.

Initial steps to consider:

• Run your business with the intent to selling it, not just operating it. This will widely affect the decisions you make, from financing and legal affairs, to R&D, human resources, sales, marketing, and business development.
• Design your exit plan. Determine your objectives, your ‘nice to haves’ and set firm conditions. Understand the valuation dynamics in your industry and what steps you must take to maximize your attractiveness to buyers.
• Line up your advisors. Selling your business on your own can lead to costly mistakes. At various stages, you will need the expertise of an accountant, tax advisor and lawyer. Share your intentions with them from the start. Consider early retention of a coach to help you optimize and implement your plan.
• Start implementing your exit plan years, not months, in advance of the time you hope to sell. You want time to work for you, not against you.
• Determine likely types of buyers. Understand what buyers would most value and build on those aspects of your business.
• Clean up your financials. Reduce debt, build cash flow and revenue. Determine what can be done to optimize your performance and momentum-based valuation.

Has the time come to start your exit plan … or is it already underway? 

Employee equity incentives have become a popular compensation tool in growth-oriented private companies. Nowhere is this more common than in the technology sector, but it is also used and applicable for other industries. These programs can help to improve company performance, employee alignment, key personnel retention and, in some cases, reduce overall compensation expense.

Equity incentive plans can take many forms, including stock grants, direct stock purchases and stock appreciation rights (also known as phantom stock). However, for many, stock options possess the most compelling blend of benefits to both employees and current shareholders.

Stock option holders have the right to purchase a specified number of shares in the company at a future date, at a price based on the fair market value of the business at the time of the grant. Generally this right to purchase is phased in over time, for example 20% of the grant becomes vested annually. If the business grows in value, the vested options become valuable. Exercising vested options allows the employee to become a shareholder and selling those shares, often flipping them back to the company, allows employees to realize a capital gain.

• Stock grants and phantom stock appreciation rights are treated as if they are compensation for tax purposes, expensed by the company and taxed at marginal income tax rates to the employee.
• Direct stock purchases require employees to assume the risk of investing personal cash into comparatively volatile, illiquid private company stock.
• Stock option plans reduce risk because there is no requirement to exercise options that do not grow in value. Also, many option plans enable immediate redemption when exercised, essentially eliminating the need for employees to finance purchase or absorb liquidity risks.

Stock options programs can provide employees and shareholders with a low risk, often tax-favourable, way to participate in the success of the company. Are employee equity incentives right for your firm? There are many considerations in making the right decisions and building a good plan.

Welcome to my site! From this humble start many good things and good times will come. I look forward working with my friends and clients, and getting to know those I have yet to meet. In big ways and small, together we will use our minds, our energy and our time together to make the world a more interesting and better place.