Selling a business is like sending your kid to college for the first time — exciting, scary, and stressful! It’s a mix of pride, sadness, and wondering if they will thrive without your “expert” guidance. In the end, both journeys leave you considering your legacy while getting excited about your new free time. When it comes to business succession planning, you’re just hoping for a smooth transition and a chance to enjoy the fruits of your labor.
Small business owners often find themselves feeling all alone as they ponder their company’s future, especially when they are ready to retire. A report by the Exit Planning Institute indicated that about 10 million baby boomer business owners are expected to sell their businesses over the next decade. For many small business owners, this is a once-in-a-lifetime event, and they want to maximize their value, while the potential buyers want to negotiate the lowest possible price, which can lead to misalignment of cultural values and the interests of the two parties.
With many factors to consider before selling your business, here are a few questions and strategies to balance your financial aspirations while trying to preserve your company’s legacy.
WHAT IS MY Business WORTH?
The value of your business is largely dependent on industry standards for similar companies. What is it that makes your company unique and possibly more valuable? Who are the key players in your company? Will they stay on if the business is sold?
During a recent visit with a client, the client was comparing valuations with a friend’s company from another industry who was planning their exit strategy; keep in mind that you cannot compare a service-based business to a retail business regarding multiples of earnings, as their valuations will vary significantly. Know your competition and understand your numbers inside and out.
How do I find a buyer?
Often, the answer can be closer than we think. Our existing employees may have an interest in taking on an ownership role, and who better to carry on the business they have worked to build? After you understand the numbers and value of your company, this would be worth a discussion for a potential candidate or candidates. Consider hiring a business broker with industry experience to search outside of your company for opportunities. Be sure to check references and ask for referrals from other business owners.
Are you worried about how the company may change after you retire?
Over the years, successful business owners foster deep relationships with their customers, as well as their employees, and would like to ensure they are in good hands after the sale. While the new owners may decide to implement changes, asking insightful questions about their values and expectations is important to ensure a smooth transition.
How will you get the value out of your company?
Should I expect a big check, or will I need to stay on for a period to transition to the new owners? Being flexible is vitally important in the negotiation process. For many larger business sales, it may be a percentage of the purchase price upfront with an earn-out structure over several years where the buyer pays you out of profits/earnings of the company. For smaller companies, it may be a big check and off into retirement. It all depends on the business and the situation.
Still feel like you need some guidance?
This may be an opportune time to connect with a professional who specializes in the process of helping people make well-informed financial decisions. A CFP® professional can help navigate the process, acting as quarterback to bring all the players together. Find yours at LetsMakeAPlan.org.
By implementing these strategies, you can create a culture of open communication and feel confident that your vision and legacy will continue for years to come.
Get started on securing your financial future today
Find a CFP® professional