As we near a “certain age,” images of sunshine and white, sandy beaches, pristine woodland treks, or well-manicured golf courses begin to interrupt our day-today existence a little more often than they have in the past. It’s not daydreaming exactly, but retirement sounds pretty inviting some days. Business owners in this category begin to wonder, “Is this the right time to sell my company?” No one wants to be among those who wait so long to retire they are exhausted or plagued with health issues and unable to enjoy their post-exit lifestyle.
The truth is – You’ve worked hard to build your company. You’ve made it a success while providing a good livelihood for yourself and your family. Maybe it’s time to reap the rewards.
First, you should know you are not alone. Since 2019, 10,000 baby boomers have turned 65 every day. This trend is likely to continue for a number of years. Do you know 63% of these boomers own private businesses in the U.S.? Most of the wealth of these individuals is tied up in the companies they built.
Many – like you, perhaps – are asking themselves the same questions you are asking. What is the best way to prepare for this life- changing event?
The following are 12 tips to help you – and your business – prepare for a transfer of ownership either now or at some point in the future.
Step #1: Start preparations early.
It may be 6 months or 6 years before you decide to sell your business. Doesn’t matter. Begin preparations today by anticipating the due diligence a buyer will perform. You want to have time to fix any problems that arise between now and the time you make your decision.
Step #2: Keep accurate financial records.
It’s much more costly to prepare all the necessary financial information last minute in a short amount of time than it is to consistently and regularly record financial data. This pre-sale period is also the time to keep a handle on business expenses.
Step #3: Make sure your assets are ready for the sale.
This means your equipment and inventory, as well as your intangible assets like contracts, leases, trademarks, patents, etc. Make sure all are assignable to a future owner. Continue to make required capital investments, but not too close to the time you decide to sell.
Step #4: Document business procedures and best practices.
Include everything a new owner will need to operate the business. This will ensure a smooth transition from your hands to his.
Step #5: Restructure your role.
Make yourself less central to the business. This can be a tough one for business owners who have spent decades being in command, building their company. They are often the lifeblood of their organization. Begin now to train your management team to take over essential business functions. If important operational decisions continue to revolve around you, buyers will perceive this as a negative. Without you, the company will appear to be less valuable, and the acquisition more risky. And that is not to your advantage. This is also the time to see that employees are cross-trained.
Step #6: Take a look at your customer list.
Do a handful of customers provide the majority of business revenue? Make sure your customer base is diversified.
Step #7: Meet with your advisors – your accountant, attorney, financial advisor.
Discuss your plans with them. Ask about your options and the tax implications of different ways ownership might be transferred.
Step #8: Think about the opportunity your business represents to a Buyer.
Buyers look at the income potential of acquisitions. They review past performance, but purchase companies that show opportunity for growth. You’ve focused on running your business day-to-day. You’ve made it successful. Keep doing what you’ve been doing, but switch gears a bit. Make note of ways a new owner might expand the business, potential streams of income they might explore. Remember: buyers look to acquire businesses with potential.
Step #9: Arrange to have a professional valuation performed.
A valuation will take market conditions into consideration. It can be performed by a reputable business broker or a business a appraiser. It will put a number to the value of your business.
Based on the valuation, some business owners adjust retirement plans or implement value enhancements to increase the value of their business before choosing to sell it. Either way, it’s good to know the value of your company ahead of time.
Step #10: As the time draws nearer, interview reputable business brokers to facilitate the sale of your company.
A seasoned business broker will coordinate activities with your accountant, attorney, and financial advisor. Choose one you enjoy knowing and have confidence in. Share your goals and aspirations with him. Allow him to walk through the process with you and identify a qualified buyer for your company that you are pleased with. An intermediary brings a market perspective to the exit advisory team. His expertise in negotiating and structuring deals can make the difference between a successful transfer of ownership and a failed one. He will help you achieve the highest value possible for your business. Together with the other members of your exit advisory team, the intermediary will help to prepare you for the next chapter of your life.
And that leads us to Step #11: Don’t underestimate the emotional impact of selling your company.
On a practical level, you may find yourself ready to sell and even relieved to have reached the decision. But on an emotional level, you may find it difficult to let go. Retiring itself is high on the life event stress meter. Add to that the sale of a business you’ve built, and – Whew! It’s no wonder business owners sometimes act irrationally after making their decision. This is not the time to go on a spending spree, for example.
Step #12: Instead, this is the time to ask yourself, “What is the most important thing in my life?”
Think about the things you love to do outside your business. Do you want to do more volunteer work? Will you develop a new hobby, travel more often, or spend more time with family and friends? Do you want to become a consultant in your industry, a mentor to young entrepreneurs, or launch a new business yourself? Get out a calendar and fill in the events and activities you have in mind. Map out your post-exit life. Surround yourself with people who support your decision. And, most importantly, take a deep breath.
The next part of your journey is about to begin!
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