Answers will give you peace of mind and confidence moving forward, allowing you to make the best decisions for you, your family and the business.
As a business owner you’ve worked hard building your business. The day will come when you ask yourself, “What’s next?” Once this question becomes more than a passing thought answers are paramount. Without them, it’s impossible to make solid decisions for the future.
Your business is quite possibly your largest asset, so the thought of a sale is intensely personal. Whether it’s a full or partial transfer to a family member, key employee(s), or an outright sale to an independent 3rd party, emotions run high. Which transition is best for you may not yet be clear, but the questions abound. As you begin looking for answers and commit to getting educated, your best options will become evident.
Here are 10 critical questions every owner should ask (and answer) to kick-start their education.
1. What is my business worth? When a business owner calls, 9 times out of 10 this is the first question asked. Of course this is a natural place to start. However, based on the type of sale (asset vs. stock sale) and overall deal structure, the question needs clarification. Business ‘worth’ is only a starting point to calculate your ultimate post-tax yield- the remaining funds after the deal is done and taxes have been paid.
2. What will I pay in taxes? Let’s face it, this is an unpleasant subject, but ignoring makes it worse. Solid answers are vital to your decision-making and planning. Depending on the business value, equity and legal structure, tax planning measures can be very effective. Without tax related answers, meaningful decisions surrounding a sale are difficult at best.
3. Can I personally retire? This answer is two-fold. First, is it financially feasible? Based on your age, lifestyle and level of personal assets, only you can determine the timing.
Secondly, do you want to retire? Some want to sell, yet the thought of actually selling is unbearable. Why? Having worked with 500+ business owners, some don’t know who they are without their business. This may sound absurd, but remove the title and responsibilities, what’s left? For some, not much. Every potential seller should know who they are without their business.
4. Why am I selling? For many, the age of retirement is here and you’re ready. For others, you may be burnt out, or your industry has changed to the point where you don’t recognize it anymore. Some owners indicate, “I’m tired and don’t want to do this anymore.” Are you tired or burnt out? Or, truly ready to retire? Be honest with yourself… the answer to this question will drive many others.
5. When is the best time to sell? Most buyers view business value like stocks- when financial performance is strong, values goes up. When financial performance is weaker, values go down. Timing is critical to maximize the value. Ideally, both the business and you personally are ready to sell at the same time.
6. How long does it take to sell a business? Selling any business takes time, there are very few exceptions. Valued and marketed properly, most businesses will sell between 10-14 months. Plan on a year, treating it like a marathon not a sprint.
7. When should I start to prepare? In a perfect world owners should start preparing 3-4 years in advance. The reality for many is this- once they’ve crossed the ’emotional hurdle’ and first consider selling, the sell-date can’t get here fast enough! For some, they’ve already checked out emotionally… a very treacherous slope. If possible, give yourself a solid 2 year window to get your business in order. Get educated. Answers allow you to make the best decisions.
✔︎ Remove Some Hats / Delegate: If you as an owner are wearing too many hats, this makes the search for a buyer challenging.
✔︎ Clean Financials: Buyers (and their lenders) like transparent financial statements. Doesn’t mean you can’t have some personal expenses, but keep them clean.
✔︎ Systems & Procedures: Documented systems and procedures will help make virtually any process in your business easily repeatable and more efficient. Most buyers look for a turnkey operation.
✔︎ Assemble Necessary Documentation: Be prepared for the due diligence process. Response time and accuracy in due diligence builds trust and confidence. Know what you need and be prepared to produce it.
✔︎ Key Employees: Key employees and the industry/business knowledge they carry is an important asset in the eyes of a buyer. Trust them by delegating; retain them by valuing who they are and their contribution to your team.
✔ Stay Focused: When preparing your business for sale, do not take your eye off the goal of a successful sale. Human nature is to relax and put your efforts on ‘cruise control’. Do this and your value will suffer.
9. Which advisors should help? The sales process is full of details. Thus, a ‘Transition Team’ should be assembled and may include an accountant, attorney, a broker/advisor, and quite possibly an estate planner and/or financial advisor. Their focus is maximizing financial gain and minimizing risk. Your life’s work and hundreds of thousands of dollars (or more) are at stake, protecting it should be a priority.
10. How do I keep this confidential? Confidentiality is absolutely paramount before and during the selling process. Plus, nobody likes tire-kickers. Thus, a strict yet efficient process is followed when confidentially recruiting potential buyers. Every inquiring buyer will complete and sign a Non-Disclosure Agreement (that has teeth), and a Summary Financial Statements (proof they can afford it). The process is designed to efficiently side-step the non-buyers and focus on those that are serious. There is no room for error when it comes to confidentiality.
After reading this list more questions may cross your mind regarding employees, real estate, adjusted earnings, deal structures, and dozens more. Answers are available to these questions and hundreds more. Educating yourself is first step. Answers will give you a peace of mind and confidence moving forward, allowing you to make the best decisions for you, your family and the business.