How to Prepare for the Sale of a Business
Although selling a business is something most business owners want to do in the long term, many aren’t preparing for it. In fact, according to an independent survey of business owners, 56% of business owners want to sell or transfer ownership of their business within the next 10 years, but 79% of owners don’t have a written plan to accomplish this. (1) Selling your business on your terms is difficult without planning your exit strategy in advance. What can you do now to prepare?
Step 1: Identify Your Goals
You built your business on a dream, but it took a spark to get you to act on it and turn your vision into reality. So, begin with pinpointing the spark. What would it take for you to hand over the reins of your business? Most business owners surveyed wanted to find a buyer or successor that met their requirements. The second highest number of owners wanted to be financially secure enough for retirement. Other business owners wanted to continue working on their business until a certain age or for as long as their health allowed, or wait until their business reached a benchmark value.
Next, picture life after selling your business. Does the thought of leaving work behind send you into a slight panic? Some owners want to stay involved in their business without the stress and responsibility of ownership, and may enjoy stepping into a part-time or consultancy role. Others prefer to make a clean break after selling their business to enjoy retirement or seek out a new challenge. Identifying your end goal is the first step in the process of creating a road map to get there.
Step 2: Determine Your Needs
With your end goal in sight, the next step is to determine what you need to do to reach it. For many business owners, their business and personal lives are intertwined and the business makes up a significant component of their net worth. Balancing your personal needs with the needs of your business is a top priority. As a result, you can’t underestimate the importance of long-term planning to evaluate your retirement needs and the corresponding portfolio necessary to meet them. Do you know how much you need in your portfolio to retire comfortably?
Step 3: Fill the Gap
Next, compare your financial needs to the value of your business. Business owners typically have a sense of what their business is worth, but the best course of action at this point is to consult a qualified business valuation expert. A business appraisal will provide you with an objective opinion of fair market value along with analyses and evidence to support the conclusion. If you have a successor or strategic purchaser in line, you may also want an estimate of investment value, or liquidation value if you plan to sell off assets.
A key obstacle for many business owners is knowing how to maximize their business’s value in the eyes of a potential buyer. In fact, 33% of business owners perceive the need to improve their business as an obstacle preventing them from leaving. (2) A business appraisal provides a secondary benefit of objective insight into a business’s value drivers and competitive advantages and disadvantages. Applying that information toward improving your day-to-day operations will help increase profits and chances for a favorable outcome when you’re ready to sell.
Step 4: Look to the Future
Is your business set up to run smoothly without you? Potential buyers are interested in businesses positioned for continued success under new management. Implementing standard procedures and maintaining clear financial records can go a long way in showing buyers that your business is sustainable. Additionally, begin delegating your responsibilities to other key employees, and take steps to cultivate the next generation of management, including a compensation structure that provides them the incentive to see the business through a successful transition.
Step 5: Take Action
When you’re ready to formalize your business exit strategy, engage a team of professionals you trust to guide you through the exit planning process. At The Rosamond Financial Group, we use a stage-by-stage process for business exit planning. The goal is to understand your needs and objectives, the value of the business and its future growth potential, and to develop an exit strategy for the most favorable outcome. To get started, book a free introductory meeting online!
Also, take a look at what clients are saying about working with us.
Preston Rosamond is a financial advisor and the founder of The Rosamond Financial Group Wealth Management, LLC with over two decades of industry experience. He provides comprehensive wealth management and financial services to successful business owners, corporate executives, and affluent retirees who enjoy simplicity and seek a professional to help them pursue their goals. Preston personally serves his clients with an individual touch, a sincere heart, and his servant’s attitude is evident from the moment you meet him. Learn more about Preston or start the conversation about your finances with him by emailing firstname.lastname@example.org or schedule a call on his online calendar.