Six Things To Consider Before Selling Your Business
You are a successful entrepreneur. After many years of hard work, sacrifice and dedication you’ve built your enterprise into a successful business. You’re now thinking about selling that business. Weigh your “exit” options with the same discipline and critical eye that have made you a success – but in the process, be brutally honest with yourself about your goals for the next chapter of your life. Thoughtful business planning, a little soul-searching and involving experienced advisors at this important juncture will maximize your exit payout and ensure that you achieve all of your goals. Your success is no accident. Your success in selling your business will require the same diligence.
Although you probably have many questions about the sale of your business, our clients typically ask the following questions upfront:
1. Is there anything I can do now to make my business more valuable?
You will (of course) want to maximize your sale proceeds and benefits. However, owners sometimes have unrealistic expectations about what their business is truly worth. Working with an experienced business broker like ABMI will greatly help you in setting an appropriate sale price range. Engaging ABMI will help you step back and try to look objectively at your business – as buyers certainly will.
Another reason you should consider engaging ABMI in the process is because many sellers under-appreciate the value of their business, and tend to offer it for sale at a price that is lower than it would bring if properly evaluated. ABMI, having brokered thousands of different businesses over the last almost 30 years, has a keen understanding of "the realities of the market place", in all economic environments, during boom, bust or recovery.
And, ABMI offers all business owners a free, no obligation evaluation, that shows an owner the price range a qualified buyer is likely to pay. To arrange for a free consultation, phone ABMI at 913-341-6300 or register with this ABMI web site.
ABMI can also assist you with suggestions that can help make your business more valuable, now or later.
- Are there glaring operational or strategic gaps that would make your business more successful (and therefore more valuable) if addressed? If there are major gaps, consider fixing those issues to increase your fundamental value proposition. If the market timing is wrong, consider waiting and selling at some point in the future. These questions can be answered now with ABMI's free evaluation, and should be done, even if you decide to sell the business later. In fact, we recommend that all business owners, whether you own a small, medium sized or large business, should have a professional evaluation done annually.
Assuming there are no major gaps in how your business is run day-to-day and the market opportunity is good, turn your attention to the heartbeat of your business – your employees. Depending on the terms of your sale (perhaps you have a structured buy-out that pays over time), you may benefit directly from the business’ long-term viability, in which case you would not just hand over the keys and walk away.
- Identify your key employees and what they mean to the organization. Develop a strategy to tie them to your organization. The buyer will want to know that you have key talent to run the business (who won’t flee to the competition as soon as ownership changes hands). Non-compete agreements with key employees are just one way to address this issue. Deferred compensation, shared rewards, equity with vesting over time, non-qualified plans and other methods can also secure key talent and keep them fully engaged in the success of the business therefore easing buyer concerns and increasing your business value.
2. How much will I net from the sale of my business after all closing costs, transaction and attorney fees and other expenses?
Owners sometimes fail to consider all the expenses and transaction costs associated with the sale of their business. Be practical. Build a realistic budget so you can make smart decisions and don’t have any unpleasant surprises.
If you own the building the business is housed in, you’ll also need to decide whether you want to include the sale of the building in the sale of the business. If you want to rent out the building, is the business owner to be a tenant? What are the lease terms?
ABMI offers all business owners a free, no obligation evaluation of their business, including an estimate of the anticipated closing costs associated with the sale. We also consult gladly, upon your invitation, with your attorney, accountant, tax consultant, and other advisors, to identify the possible taxable consequences of a sale.
3. What should I do with any large lump sum I receive from the sale of my business?
Receiving a lump cash sum is a heady thing – make sure you have a solid plan for what you’ll do with all that cash before it’s burning a hole in your pocket and your emotions are engaged.
- Where should I invest this money?
- How much income can I withdraw from these investments?
- Can I grow my assets at the same time I am receiving income from them?
- How can I guarantee that my income won’t run out?
- Can I buy that boat/vacation home/golf membership/red convertible I’ve always wanted?
- Will my spouse mind that I’ve purchased that boat/vacation home/golf membership/red convertible I’ve always wanted? (You’re on your own with that question!)
Again, your ABMI agent/advisor/consultant will gladly consult with your attorney, accountant, tax planner and other advisors, upon your request, to make sure that you receive all the advice you need to make an informed decision.
4. Do I have a well-defined retirement/investment plan that will guide me throughout my lifetime?
Reassess your retirement and investment plans in light of your revised goals and your change of circumstances. Don’t assume your existing plan is adequate – this is an opportunity to look at your situation with fresh eyes and make necessary adjustments.
- What are my cash flow needs going forward?
- Have I taken into consideration all of my assets, liabilities and sources of income?
- How will social security affect my retirement?
- What about life, health and long-term care insurance?
- Should I stay on my current group insurance plan?
- What are my other obligations, such as, college expenses, special needs children, etc. that I need to protect?
- Should I pay off my existing mortgage or keep it for the tax deduction?
- Should or can I consult to my former company? For how long? Do I want to? Does my involvement for a certain transitional period add value for the new owner? What are the terms of this arrangement?
5. What if disaster strikes during the buy-out phase?
- What if the new owner dies prematurely? Am I protected?
If you are depending on the new owner of the business to complete certain payments to you, insurance can protect you if the new owner dies and therefore fails to make those payments. Collaterally assigned policies can ensure fulfillment of payment obligations to you, the seller.
- What if I die? Is my family protected? How can they receive full and fair value from the sale?
Your sale agreement should mandate where multi-year buy-outs should be paid in the event of your death. A comprehensive estate plan should address any multi-year buyout situation, including tax implications. You will want to work with an accountant who is well versed in the special circumstances created by the sale of your business, so you don’t create probate, tax or estate headaches for your heirs. Appropriate insurance coverage can provide additional protection.
- What if the new owner runs the business into the ground while I’m on a vested payout schedule? Do I have recourse?
To mitigate this risk – get as much value as you can for your business upfront! If you’re depending on the success of someone else for your payout, you’re taking a bigger risk than if you are paid in full at the sale. For that reason, you should screen the buyer along with the terms of the sale, especially if you agree to a deferred payment for some time under a payout schedule.
Of the thousands of different businesses ABMI has succesfully sold over the last almost 30 years, in most cases the seller received 100% of the sale price at the sale closing. In some cases, an owner wanted to finance some of the purchase price, for tax reasons, and/or to gain the interest income on the deferred portion of the price. But, even in those cases, usually the owner financing was for less than 30% of the total purchase price. In a few cases the seller decided to finance more than 30%, in which case the seller's Promissory Note was usually created with extra conditions that reduced the seller's risk.
In any case, ABMI has never required business owners to finance any of the purchase price. The topic of seller financing is discussed at the beginning of our relationship with a business owner, before the owner is asked to sign a Listing Agreement with ABMI (and before we've dealt with any potential buyers). That discussion covers all the aspects of seller financing, inlcuding the "pluses and minuses". Then, the seller makes a decision about whether or not to offer buyers seller financing, and that decision drives the marketing effort of ABMI. For sellers who wish to not offer seller financing, ABMI is just as enthused about going to market as we are for a seller who offers seller financing.
And, for almost 30 years, ABMI has specialized in assisting business buyers with arranging the financing needed to acquire a business. We've never relied on seller financing to get deals done, but have been very successful at arranging for buyers to obtain financing from conventional lending institutions.
6. What’s next for me?
Many business owners fail to answer this fundamental question before they sell their business. Selling your business isn’t just another business transaction. Often entrepreneurs have poured their heart and soul into building a successful business. Even if you’re not emotionally attached to your business, you probably want the final sale to help move you forward against your broader life goals. Whether this is your first business or your 50th – selling your business creates exciting new options for you. Consider those options upfront and know what you want before you begin the sale process. You’ll be happier with the end result.
- Will selling the business help me achieve my new goals?
Perhaps your goal is retirement. In that case, will the sale allow you to retire in the style you want? Perhaps your goal is to start an entirely new business, focus on another venture you already have, or head in a different direction entirely. Your sale should set you up for success as much as possible in whatever you want to do tomorrow.
- Have I addressed my emotional attachment to the business and my employees?
Your business has been a large part of your life. Don’t neglect this issue. Have you really thought through “what’s next”? Is this business your identity? What is your plan to manage your newly acquired free time and cash? Make sure that you are satisfied and are fulfilled with your new direction, so that you don’t mourn the sale of your business but instead celebrate it.
ABMI has been brokering businesses of all kinds, all sizes, all prices in the Midwestern USA for almost 30 years. If you're curious about how to sell your Kansas City business, or your Missouri business, or your Kansas business, or a business in some other part of the USA, we can help.
ABMI has represented thousands of different business owners in the sale of their businesses. We've always been dedicated to helping these clients "get where they want to be", financially, and with their "next phase" life plans. To arrange a no obligation, no cost consultation, please phone ABMI at 913-341-6300 or resister with this ABMI web site, and we will contact you.
Congratulations! You’re selling your successful business at a nice profit. Today is the first day of the rest of your life.