Over the years, you’ve built your business with your vision, grit, determination, and a team who’ve supported you along the way. Whether you’re still involved in the day-to-day operations or you’ve scaled back your responsibilities, you’ll need to decide what you want to happen to your business when you step away. The time to make those decisions has a way of sneaking up on a business owner.
One clear option is the sale of your business. It’s important to understand your motivations. There are many things to consider when selling a business, including how your decisions will shape your future. You may be considering the next chapter of your career. Or, reasonably, it could be approaching time to enjoy a well-deserved “next phase.” In any case, your decision to sell your business needs to be driven by clear goals.
You don’t want to act hastily or in response to temporary frustrations. If maintaining the business’s legacy is important to you, finding the right successor who will continue your mission and values requires careful consideration and effort.
Planning To Sell A Business
How do I know if I’m really ready to sell? Ask yourself:
Have I achieved my business goals?
Am I emotionally ready?
Do I know what I want to happen to my business?
Do I have a retirement plan?
What are some things I should be thinking about when entertaining offers?
The future of your employees: Will the new owners honor the hard work and dedication of your team? How can you make this transition easier on them?
Post-sale obligations: Some buyers will want you to stay on for a period of time after the sale to ease the transition and not spook your clients.
Emotional preparedness: given the significant investment of dedicated time, effort, and emotion you've poured into building your company, are you ready to let go?
Are you ready to sell?
Deciding to sell your company is a big step. You need to know that you’re fully prepared to part with your business. When determining your readiness to sell, there are a number of factors to consider. Try to answer the following questions honestly.
- Have you achieved your business goals?
- Do you know what you want to happen to your business after you leave?
- Are you emotionally ready to give up your routines, responsibilities, and working relationships?
- Do you have plans for how you will spend your time during retirement that will fulfill a sense of purpose for you? Do you know when you want that to begin?
- Do you already have a financial plan in place to support you in your retirement?
- How often do you get offers to sell your business?
It’s not uncommon for business owners to begin the process of selling before they are emotionally ready. Rushing this process can leave you with regret. It’s often hard for business owners to let go given the significant investment of dedicated time, effort, and emotion you’ve poured into building your company and nurturing relationships with your team and customers.
If you don’t have a succession plan in place that leaves you in an ownership-emeritus position, selling may be the right option for you. In that case, you’ll want to find the right buyer based on what you want to happen to your company and your timeframe for fully stepping away.
Some companies receive sale offers frequently. Often, though, offers are much less common in certain industries. If you’ve received attractive offers from an aggregator or private equity firm, it’s worth considering your options sooner than later even if selling hasn’t been on your mind. Some buyers may want you to sign the dotted line and hit the road now. Other buyers might ask you to stick around for a bit to smooth the transition.
What to Consider in the Offer
Post Sale Obligations
A sale that stipulates that you stay on for a period of time allows the buyer to benefit from your decades of experience and expertise. Depending on the sale agreement, this arrangement could last a year or two.
In this case, you may no longer be your own boss and your well-ingrained lifestyle is likely to change. You’ll have to transition away from full autonomy, and will likely have to answer to the needs of the new ownership. Before you start entertaining offers, decide if you’re willing to stick around for a couple years under someone else’s authority.
Employee Impact
Your employees are the heart of your business. Their loyalty and hard work have been instrumental in your success. When selling, look closely at how they may be affected. As you evaluate potential buyers, look for someone who values your employees as much as you do.
Push to formulate a deal that safeguards your employees’ futures. If that’s not feasible, provide as much support as you can during the transition. Looking after their well-being honors their dedication and helps preserve the legacy you’ve built together.
Financial Implications
Experts can really help set the stage for a smooth and successful transition by guiding you through the process, helping you to navigate financial, legal, and tax-related challenges.
Often, the payout of a sale is a combination of upfront cash and potential future payouts, known as earnouts, based on the business’s performance. Earnouts require the company to meet specific earnings or revenue benchmarks for you to receive additional payments.
Selling your business usually results in a long-term capital gain, subject to capital gains taxes. Your gain is calculated as the selling price minus your original cost basis, so any future payouts can really help soothe the sting of your tax bill from the initial lump sum.
If the terms of the sale have you staying on for a couple of years post-sale, it will likely be at reduced pay and with fewer company-provided benefits like cars, devices, and wireless services.
Negotiating and Due Diligence
- Vet the Suitors. Research their reputation and financial strength. Determine whether you’re comfortable with the way they do business.
- Compare Offers. Don’t jump at the first offer. Terms can be negotiated, including up-front cash vs. stock options.
- Understand the Details. Get clear on everything in the contract, including post-sale obligations and financial terms.
Final Thoughts
Finding the right buyer to uphold your mission and values calls for careful thought and effort. As you navigate the complexities of selling your business, consider all financial implications to you and your future goals, as well as the impact on your employees and the legacy you wish to leave behind.
By planning thoughtfully, you have a much better chance of achieving a successful transition that honors your hard work and dedication, and accounts for the futures of both your business and those who have been a part of its journey.
Selling your business can be more complex than running it, so it’s vital to engage a team of financial, legal, and tax professionals. Their guidance throughout the process can significantly impact the success of the sale and your personal satisfaction when it’s over.
At SK Wealth, our financial advisors have been helping our clients make informed choices regarding business and retirement options for 25 years. We’ve honed our financial planning process, The Integrated Financial Advantage™, to offer recommendations that are personal to you, your lifestyle, and your goals so that you can live with intention, tomorrow and today.
