This article was published in the New Haven Register on May 21, 2021.
Are you a business owner without an exit strategy? You may as well fly a plane without knowing how or where you’re going to land.
If you have spent years building a successful business, it’s most likely your largest asset. One day you will look to convert all of your hard work into investment capital to fund your retirement.
Unfortunately, many small-business owners stay busy running the day-to-day operations and don’t think about the endgame until it’s time to sell — they become ill, burn out, face a family emergency, or are forced to sell due to economic conditions. Too often they are shocked to find out that potential buyers do not then value their company as much as the owner expects.
Selling your business is a long-term process, and exit planning needs to be part of every decision you make, so you focus on enhancing long-term value. Here are some tips on preparing to sell your business:
Know your options. You can sell to a strategic buyer who intends to continue the business legacy; to a private equity firm that may or may not want to retain your services; to key people in your organization; to all your employees in the form of an Employee Stock Ownership Plan; or to family members. Each option has pros and cons.
Have a transition plan. Discuss what will happen to the business should you become ill or disabled. What happens if you die unexpectedly? You should have written agreements on all these matters.
Form your “life after business” plan. Are you really going to be happy playing golf in Florida? Some people are, but many hard-driving business owners find such a drastic change difficult. Know what you want and how much money you’ll need to finance it.
Constantly improve your business. Make sure you have a good employee team in place, one that can keep the business running smoothly if you leave town or get sick. Invest in employee training and new technology. Keep your intellectual property and patents up to date. Ensure you have professional accounting processes in place: If you’ve been writing off your country club dues, eliminate such practices.
Assemble a sales team. Anyone who is interested in buying your business will deeply research your company. If it’s a private equity firm or a company that frequently buys up smaller firms, they will know more than you do about the process. To level the playing field, you need to hire a team of advisers with experience selling businesses, including a financial planner, an accountant and an attorney. Depending on the size of your business, you may also need to engage a business broker, an M&A firm or an investment bank.
All things come to an end, and the earlier you start planning your exit, the better for your bottom line.
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