WHEN YOU have a new business, you usually have visions of how you are going to make it successful and be able to gain from it. You set up business goals which you will use for your business to become a success. Occasionally, once investment groups hear about your growing new business, they will approach you with an offer to buy you out immediately. This can come as quite a shock because you’ll likely feel like you haven’t really done anything yet. Nevertheless, the investment group clearly sees potential and makes an offer. 

At this point, you’re now left with the choice as to whether you should consider a buyout or not. Start-Up entrepreneurs generally view this option in one of two ways. Businesses are started to make money, and if you sell, you can make that money now and retire or start another business, possibly losing out on the really big money if your business continues to grow and thrive, or they refuse the offer and risk the business going under in a few years, leaving the start-up entrepreneur with nothing. Unless you’re confident that you can simply turn right around and build another successful business if you sell your current one, this decision often keeps start-up entrepreneurs awake at night.

There are a number of buyouts that a business owner should consider and choose one that will be most appropriate for their situation. If they are considering a leverage buyout, they need to be able to involve investors into their business as they will be running all their affairs. Although this can help an owner pick up their business, at times it can have disadvantages as those new financiers will come with new methods and policies that may not agree with that of an owner.

Buyouts can result in extra expenses for a business. This is because one needs to seek advice before they decide whether they will go for a buyout. This also includes costs for a lawyer who will handle legal aspects of it as well as handle all paper work that may be associated with it.

When one considers a buyout for employees, they need to ensure that they give an attractive package. This is because if they feel short-changed, they will sue the business owner and this will put a business into even more strain as an owner will have to hire a lawyer and at times be ordered by a court to pay their employees again and this can be very expensive.

One more downside is that an owner will risk loosing his employees that are very well experienced and who may be needed, especially when it is in crisis. This could also affect other employees who are left behind as they will feel discouraged and may in turn also offer to leave, leading to an even greater loss.

If you’re trying to sell your business, as opposed to being approached by VCs, another factor that a business owner needs to put into considerations is a company’s financial situation. This is because if a company is too deep in debt and its cash flow is insufficient, then a buyout will not be successful and can result into failure. An owner should first consider improving their cash flow then consider a buyout.

Though at times a buyout is a good solution for a business that is not performing well, it comes with multiple disadvantages.  If a business owner is considering a buyout, they need to put all factors onto perspective so that they do not end up losing everything in a buyout. At times, it is better to brave it and face competition and other factors having a negative influence on their business as with time it may improve and stat generating profits again.