By SJS Investment Services Founder & CEO Scott Savage.
Your process for selling your business will likely include the following steps:
Determine the age at which you want to leave the company
This will help set the framework for your plan.
Assess your financial situation and your desired retirement lifestyle
This step will help you determine the cash flow you need for retirement.
Determine the gap between your savings and your desired lifestyle
Ideally, the sale of your company will cover that gap. You’ll need to problem-solve if it won’t.
Decide how you want to transfer the company
Knowing the “how” will help you understand the appropriate steps forward.
Get a valuation of your company
Many people think they can ignore a valuation since the sale is years down the road. However, a valuation is essential. By understanding your present value, you can act to increase the value and get the sale price you need to retire.
Assess and implement the steps you need to increase value
You want to look at factors such as your customer base, systems and processes, and cash flow. We would argue, however, that the most important factor is you - or better yet, the lack of you.
Your buyer will want to know that the company can function without you. Start stepping back from the day-to-day running of your company and give your management team the opportunity to hone their skills. Giving up control may challenge you, but it is essential for maximizing your company’s value.
Review your financial picture
If you have always kept your cash in the business, now is the time to diversify your wealth. Factors outside of your control such as a recession can hurt your company’s bottom line. Diversifying your wealth can help see you through rough times and allow you to adjust your plans from a place of strength rather than weakness.
Review your professional and personal financial picture, including retirement accounts and other investments, insurance, and estate plans.
This step may be difficult as many business owners feel in control of their company’s destiny but not in control of an investment portfolio.
Understand the tax impact
Your tax picture will depend on your company’s structure and the type of sale. You want to understand this picture and implement strategies across all areas of your wealth to reduce the tax impact. The fewer taxes you pay, the more you will have for retirement.
Find a buyer and agree on financing terms
Most agreements allow the seller to purchase the business over time. This can be ideal for both of you, as it will allow for a slower transition out of the company, increase your team’s strength in running the firm, and allow the buyer to avoid an upfront investment they cannot afford. But you may have different plans, and by this point in your journey, you should understand those plans and seek a purchaser who will meet as many of those terms as possible.
Implement the sale
Make sure to communicate with your employees and customers. Provide the pertinent details, and if it’s feasible, make in-person introductions. Both your clients and staff will have questions; be prepared and be transparent. It’s in your best interest that everyone affected by the transition of leadership is prepared.
Retire
Congratulations! If you are wondering what’s next, you can check out this blog post.
To help business owners work through their emotions as well as make better decisions when considering selling their businesses, we wrote an ebook entitled Your Business Exit: Monetizing Your Life’s Work. We explore how your situation can come together - the dollars and the cents, as well as the behavioral - so that you can create a successful business exit.
If you have any questions or want to talk through your potential business exit, please feel free to reach out to us. We have helped many business owners successfully handle the financials as well as the emotions of exiting their businesses, and we would be happy to help you as well.
Important Disclosure Information & Sources:
Advisory services are provided by SJS Investment Services, a registered investment advisor (RIA) with the SEC. Registration does not imply a certain level of skill or training. SJS Investment Services does not provide legal or tax advice. Please consult your legal or tax professionals for specific advice. This material has been prepared for informational purposes only.
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