Preparing a Plan for Selling Your Business
21 May 2018
One of the key findings of a new UBS Financial Services study on health, wealth and wellness is that most business owners are totally unprepared for selling their business even though the sale of that business is likely to be the primary method of funding their retirement. If you have not prepared for selling your business, it is unlikely that you will walk away with the highest value when that sale eventually happens.
We’ve found that most business owners are totally unprepared for their own retirement. According to that same UBS report, 58% of business owners have never had their business formally appraised or valued and 48% have no formal exit strategy in place. These numbers are astonishing, suggesting that most business owners have given little thought to an event that is nearly guaranteed to happen eventually – and especially given that 75% of owners believe they can sell their business in a year or less.
Further, of those business owners planning to transition out of their business over the next five years, the majority plan to sell (as opposed to leaving it to the kids). This may or may not be a smart decision, but it is definitely a difficult process and requires careful planning and sufficient time. Do these owners know at what price they would sell? It’s unlikely, given that most of them have not had their business valued. If you’re a business owner, would you consider being bought out by a competitor? Have you thought about selling your business to your employees? Would you leave it to your children? If so, at what price? Do you know if your kids are even interested in “the family business“? Most are not.
While requiring detailed planning as well as advice from professionals experienced in the valuing and selling of businesses, planning a successful business transition does not need to be stressful. With a well thought-through analysis of you current situation and your objectives should result in a strategy that identifies specific targets (time, financial result, tax avoidance, etc) and enough time to consider the options for reaching that target. And with the sage advice from the proper counselors, you’ll maximize the chances of a successfully hitting your targets. To get started, consider these three simple steps to begin to untangle the process:
1) Understand Your Motivation
Ask yourself: Why are you considering a transition? Have you thought about what you’re going to do after the sale? Decisions often fall into four categories, each of which can dictate a different approach, but also should not be treated in a vacuum:
- Personal goals and needs. This would include such broad categories as health concerns and financial condition to a long hoped-for five year round-the-world motorcycle trip.
- Business considerations. Do you see a trend developing in an unrelated industry that you want to be part of? Founders and many owners of businesses are, to one extent or another, entrepreneurs and it is not unusual for them to see new opportunities or to simply tire of the day-to-day operations of their existing business. Many just crave the startup environment.
- Industry trends. Do you see the industry players consolidating? Do you see more competitors entering the market? Are you seeing an “acquire or be acquired” market developing?
- The Offer. Being ready for a possible offer for your business from a competitor or strategic acquirer is, at least in the current market and for the foreseeable future, critical.
2) Consider Your Timing
Take a good hard look at your “life” calendar. You have professional, personal and financial goals and you need to know where you are in the process of reaching each. When you want to sell and how that timing comports with your goals and the economic environment need to be considered and your planning needs to account for how close you are to reaching your various goals. What you would do with one year to sell is quite different from what you would do with five years to sell.
Now’s the time to get some professionals on board. Their counsel will help significantly as you work through your timing.
3) Assemble the Right Team
Just as you have assembled the right team to build your business, you need to assemble the right team to help navigate the sale of that business – and those teams do not generally overlap. Along with the obvious advisors – your accountant, attorney and a professional business broker/advisor, you need a few additional specialists. Specifically, enlist the help of an estate planning attorney, a personal financial advisor and a corporate transaction attorney. As a team, some of the questions that you should be considering include:
- What is the business’ current valuation and how can you get the most money out of an exit?
- How can we structure the business sale to be most advantageous from a tax standpoint and from an estate planning perspective for your family?
- What is your post-transaction investment plan to enable you to live comfortably for the rest of your life?
- If the next generation will be part of the acquisition, how can the transition be set up to maximize their benefits when they eventually sell?
Want to learn more? We’ve put together Five Steps for Developing an Exit Strategy and it’s yours FREE by simply telling me where to send it.
If you have any questions, comments or feedback on this topic – or any topic related to business – I want to hear from you. Put them in the Comments box below. For example, if you want to sell your business, what is your biggest concern about the process? Are you wondering what your business is worth or how long the sales process might be? Let me know. Start the conversation and I’ll get back to you with answers or my own comments. If I get enough on one topic, I’ll address them in a future post or podcast.
I’ll be back with you again next Monday. In the meantime, I hope you have a profitable week!
#business #howto #sellabusiness #sellyourbusiness #becomeabusinessbroker
The author holds a certification from the International Business Brokers Association (IBBA) as a Certified Business Intermediary (CBI) and can be reached at joe@WorldwideBusinessBlog.com