Economic conditions such as high market demand for profitable businesses, labor shortages, and economic uncertainty in the year ahead are bringing many business owners to the point of selling their business. Whether a business sale is on the short-term
horizon or a consideration in five years, the sale will be one of the most significant business actions you will make.
To receive the most value and ensure the success of the sale, you need to determine your priorities, evaluate the timing of the sale, and assemble an expert team to assist you along the way. The process can be emotionally and financially daunting. Before moving forward with a potential sale, it is important that you are prepared for the key steps in the process.
Have you thought about how much money you need to make off the sale to retire comfortably? Do you have someone in mind you plan on handing the reigns off to? Do you have a financial consultant, broker, or CFO to work alongside you to ensure a seamless transition and fiscal success? Do you know what you plan to do once you sell? Answering these questions allows the exit strategy to begin.
Many business owners can estimate how much money they’d like for a comfortable retirement, but not all know just how much their business is worth. For example, you can estimate that your company may be worth $10 million but find no buyers in the current market are interested in purchasing the business at that price. Knowing your company’s current market value will protect you from selling under fair market value, or not finding a buyer because the business was listed for too high a price.
To do a proper valuation for your business, you will need the guidance of a professional who will review your projected financials along with the last three years of profit and loss statements, your business tax returns, and balance sheets from that time period, as well as a statement of cash flows. The revenue trends and how much cash flow the business is generating are key. Trying to successfully negotiate a deal without a prior understanding of what your business is worth puts you in a position to lose money.
Understanding your business assets is an added benefit of going through a business valuation. Below is a list of basics you should have in order before selling your business:
Just as important, you should have a list of what you look for in the right buyer to make sure your companies have the right synergies. To make sure your goals align with the buyer’s goals, ask them questions pertaining to the intention for buying the business. Don’t hesitate to ask how many companies they’ve acquired or how these companies are performing. Finding a great buyer doesn’t mean you should immediately sell your company. You need to make sure you’re ready to retire from the venture or if you want to continue. Some strategic acquisitions will have arrangements to keep you in the company and let you handle the day-to-day operations. In this case, you could sign a short-term agreement to keep working with the company and gradually retire. Some considerations:
When you begin planning to sell your business, you may find it’s a complex undertaking. A team of professionals, including financial professionals, tax advisors and business and estate attorneys, can make a big difference in setting the stage for a successful process. Even for a relatively small business, there’s a myriad of federal, state, and local regulations and tax issues to consider, not to mention one or more extremely important contracts to negotiate. Exiting your company may feel more like a marathon than a sprint. Assembling the right team of experts can walk alongside you during the process, making all the difference between selling the business and selling it at a premium price. Considerations include:
One of the first things to remember is solidifying a deal never goes exactly as planned. It is rare for a business owner to immediately find a buyer that offers the exact price he or she imagined. Sometimes the key is negotiating, and that can take anywhere from three months to over a year for a deal to close.
A CFO can help you weigh your options and offers. You might be hit with a situation where one offer is less in price but has more perks such as letting you still have some piece of the business. Another buyer could be offering more for the asking price but not provide the option for you to keep part of the business. Similarly, you may be offered a high price by a competitor, but they have a completely different vision for your company that you think, from your experience, will not bring the brand success.
If you run into a situation where none of the offers matches the asking price, you can work with a CFO to see what you can do to make your business more attractive. There are plenty of ways in which you can help to increase the value of your business. If you always keep future business value in mind, you’ll increase your chances of future success with investors and buyers whilst driving current profits.
Once you and your CFO are happy with the contract and sale, it’s time to understand what to do with the money. Work with your CFO or consultant to set up estate planning, asset protection, will planning and more. Understanding your options, the best way to set your money up for success and investing the cash correctly can further create the comfortable retirement you desire. Having a plan for managing your wealth in retirement can help a new retiree accomplish many goals—both financial and non-financial. And it can provide an opportunity to show your family how your wealth can be used to help others.
Robust economic growth, available capital, relatively low interest rates, and high equity valuations have created an unprecedented surge in M&A and business exits over the last five years. If you are contemplating the sale of your business that you’ve worked decades to build, preparation is key. A well-prepared business gets more offers, and usually better offers, than does a less prepared one. A well-prepared business is in a better position to successfully complete the sale and do so more quickly.