Selling a business is a major life decision that usually requires deep consideration. The past 14 months of pandemic living gave many business owners time to contemplate the future of their business and to reflect on what they want in the next phase of their life. You may be among the owners who are considering whether selling may be the best alternative for you and your family.
There are a few key things you need to do to have the best idea whether a sale is right for you. Work through each of these four key steps before you put your business up for sale.
Do you have people in place to succeed you internally or are you looking for a fully external sale? Do you plan to stay once you sell? If so, how long would you like to stay and on what terms? Most buyers will pay less for a business that is still heavily reliant on the founder, so it is important to move your business to be less dependent on any one person’s work.
Most business owners have basic financials in place and know their key ratios. It is important, too, to firm up other potentially appealing parts of their business: market share, tenure of employees, key clients, market trends. Buyers are buying the future potential of your company as much, or more, than its current success.
You may have benchmarks or have seen what you consider comparable sales in your industry. This is a starting point for understanding what your business may be worth. However, until you go through the process of a valuation you will not know how an outsider will view the business. When you get a professional valuation, you will receive a more objective view than what you are able to see as an insider.
How do you know if the sale price is “enough”? Once your business is in shape for sale, confirm whether what appears to be the current market value of the business will be enough to meet the needs of your financial plan for your next phase. You do not want to sell your business prematurely if there is still more work to do. It may be that you map out a plan for the next 2 -5 years until you shape up the business for sale*.
For example, you may choose to work longer to pay off the debt in the business or gain traction back from pandemic losses in sales. If there are steps you can take that would dramatically increase your valuation to reach your number, then taking a few more years before you sell may make the most sense. When you know your number, you have a framework against which to evaluate your current situation or any offers you ultimately receive.
Unfortunately, you need to do all of these steps while continuing to run and grow your business. No successful business can slow down operations to focus on getting ready for a sale. You have to prepare while continuing to grow the business. The appeal of a thriving business, one that is not only well-established, but continuing to grow, is reflected in its successful sale.
Depending on your industry it is vitally important to get these items in place before there is even a whisper that you are thinking of selling or exiting. Once word gets out that you are seeking to sell, you will want to be an attractive target for a buyer right from the start. Any early negative buzz about your sale prospects can taint the value you receive.
With proper advanced planning and an objective perspective of your situation, you can make the choices that work best for you and your family. While it is easy to focus solely on the business side of the equation, understanding your personal financial plan and your funding need for your post-sale life is an essential part of your exit planning. Our personal financial advisors specialize in helping business owners navigate the complexity of selling a business to make a life change. If you are contemplating an exit, we invite you to schedule a conversation.
*If your choice is not to sell the business or to wait a few more years, make sure you put these critical agreements in place.