The decision by a business owner to sell his or her business is usually a difficult one. It typically involves many different emotions and raises a number of questions. What will I do after I sell? Will I have enough money to be financially independent? Am I selling because I’m bored or burned out, and if so, is it the right time to sell?
Sellers give me a number of reasons for burn-out:
I’m tired of managing people.
I’m worn out by recent company financial struggles.
I can’t keep up with the speed of technological changes.
The company doesn’t provide the challenge that it once did.
Bigger competitors are making business more difficult.
If you are suffering from burn-out or boredom it’s probably time to sell. The best time to sell your business is when it’s on the upswing. If you’re burned-out or bored the company will more than likely suffer financially due to lack of attention. You should sell before it begins to slide.
Some business owners don’t want to sell even though it may be a perfect time economically to do so. They just can’t imagine life outside of business. They perceive their personal identity is derived from their being the owner of XYZ Company. They are afraid that they will lose status in clubs or business organizations if they no longer own their business. Of course, in reality, this isn’t true. They will probably have more time to be active in these groups and may achieve even more recognition. Besides the status issue, some owners worry about what they will do with their time. They don’t have any hobbies, and their spouse doesn’t want them hanging around the house all day. This fear is also unfounded. An entrepreneur who was creative enough to build the business in the first place will be smart enough to apply their new freedom and energy in creative and productive ways outside the business. I have seen some of my clients who had once wondered what they would do with their time after they sold their business, later wonder why they don’t have enough time in their day to finish all the important projects they have discovered to devote their time to.
There is no one right answer to the question of when the best time to sell your company is. One benchmark is to sell your business when you have had multiple years of good sales growth and profits. Don’t be afraid to leave the buyer some room for growth either. An astute buyer won’t give you your maximum purchase price if they think you are selling at the company’s peak. They are paying you for past performance, but also for the future of the business.
"The best advice I can give is to begin early in the life of your business planning your exit strategy. You should form a team of advisors consisting of a CPA, an attorney, a financial planner, and business broker who will advise you long term on how to build your business and when it’s time to sell."
- Wayne A. Simpson CPA, M&AMI is a Managing Partner at Utah Business Consultants and a Merger & Acquisition Master Intermediary with the M&A Source. Utah Business Consultants is a full-service Business Brokerage and Valuation firm.
At Utah Business Consultants, we’re here to help if you’re looking into selling your business. From basic business valuation services up to all the details involved in exit planning, we can ensure you have everything in order when it comes time for a sale.
What are some of the key themes that go into a successful business sale? There are a few, each in distinctly different areas. Here are some broad areas to make sure you’re considering when you’re thinking about a sale.
Understanding the Buyer
For many who have not been through the process before, finding a great buyer can be a difficult process. It can be hard to identify the qualities you’re looking for in a buyer, and even once you find them, it can be tough to separate prospective buyers who are truly serious from those who are not.
This is where a business broker like ours comes in. Business brokers have years of experience with vetting buyers, plus databases that help match your business with buyers that could be a good fit. They know all the signs that point to a truly interested party versus one that’s not serious, as well.
Determining Proper Pricing
One of the fastest ways to lower interest in your business for sale? Pricing it too high. First impressions are vital – even if you realize your mistake and lower your price after a period of time, there’s some percentage of prospective buyers who won’t even consider you moving forward after seeing that first egregious asking price.
Once again, a broker can do wonders for you here. We can assist you with properly valuing your company, including incorporating all your business elements to get a full picture. If you’re being unrealistic about your company’s value, we can show you why this is the case.
Maintaining Standard Operations
The process of selling a business is a demanding one, and a big part of the reason why brokers are so important for facilitating it is because maintaining standard operations during the sale is vital. A business broker allows you to keep your normal procedures running as usual while they focus on the sale at hand – if you don’t take advantage of these services, you could see the value of your business drop during the sale process itself simply due to the business suffering.
Ensuring confidentiality during the sale process is vital, both for legal and practical reasons. Breaches of confidentiality can lead to certain sales being voided completely, which is the worst-case scenario, but there are other possible results as well. Employees or managers might start looking for a new job, or suppliers and buyers might get wind of the news and take their business elsewhere. None of these are results you want.
For more on the important areas that go into a successful sale, or to learn about any of our business brokerage services, speak to the staff at Utah Business Consultants today.
Establishing and building your business has been a labor of love. Whether you have owned and operated it for three years or 30 years, your hope is that it continues to thrive and serve its customers.
And as much as you may want to work at your business forever, the truth is you cannot. Consequently, you must make plans for what happens when you are ready to retire.
Many entrepreneurs plan to turn over their business to one or more of their children. Others may plan to hand the reins to another family member or sell the business to a trusted and treasured employee.
Regardless of your wishes, it’s best to get help with your succession plan from a professional.
Effective succession planning involves building the value of the business during your period of ownership and management, and having a plan in place when you are ready to step down. It means that management authority and control are delegated responsibly. Finally, it means that the benefits of ownership are fairly distributed to those who are entitled to them. It begins with an analysis of your answers to the following questions:
How old are you? How is your health? How and when do you plan to retire?
How old are your children? What exposure have they had to the business? How would you rate their business acumen and leadership skills?
Do you want to keep the business in your family?
If not, then what is your exit strategy? What estate planning steps have you taken to manage the proceeds of an eventual sale?
If the business is to stay in the family, then which family member(s) would you select to control it? Are they truly committed to the long-term business objectives of the company?
Is there a need for transition management involving non-family employees?
If you sell the business to your children or other family members (or even to your employees), how will they finance the purchase? How will you get the liquidity or proceeds that you need to live comfortably during retirement or to meet your estate-planning objectives?
If you choose to transfer the business as a gift (or at a price below fair market value), how can you be fair to “non-active” children and protect the business from their demands?
What continuing role do you envision for yourself?
Will your withdrawal be partial or complete, and what will your timetable be?
The bottom line is that succession planning is a process that involves many steps, including (1) acceptance of the task; (2) building consensus; (3) choosing the proper candidates, options, and strategies; (4) clearly defining roles; and (5) monitoring the plan to ensure its effectiveness.
There are several ways you can achieve a smooth and orderly transition. Among your options:
Transferring ownership to family members.
Sale of your equity to remaining co-founder(s).
Sale of some or all of your equity to employees.
Sale of some or all of your company (either a portion of the equity of a spin-off of a particular operating division of your business) to a competitor, strategic buyer, or investor.
Sale of a significant portion of your company to the general public through an initial public offering.
Implementation of a creative transition strategy, such as franchising, licensing, or joint ventures.
How do you choose which strategy (or which combination of strategies, because certain strategies are not mutually exclusive) is best for your business? Many factors will influence your decision, such as:
Your business strategy and personal financial objectives and retirement needs.
The availability of a viable family successor.
The presence of co-founders or minority shareholders in the company.
The pool of key employees who are interested, capable, and financially qualified for ownership.
Trends within your industry.
The valuation of your company and the status of the financial markets.