Understanding How To Sell A Business
Congratulations! You’ve reached an incredible milestone and are ready to learn how to sell a business. Selling a business is an exciting endeavor that can potentially change your life. All the years you put into building your baby will finally pay off. If done correctly, it can be quite lucrative. However, if done poorly, it could result in undesired consequences that could negatively impact your bottom line and jeopardize your long-term financial goals. For most, it’s a once-in-a-lifetime opportunity to cash in on all the hard work.
While the idea of getting to this point sounds amazing, ask anyone who has sold a business before, and they will tell you it was a grueling experience with lots of highs and lows right up to the close of the sale. Before signing any letter of intent (LOI), the vital thing to know is to be as prepared as possible. As trusted advisors, we help our clients navigate this process. Below is a list of several steps we suggest you take before you embark on this journey.
Identify the Reason to Sell in the First Place
Ask yourself, why do you want to sell? Common reasons are the desire to retire, partnership issues, the illness or death of an owner, or the desire to bring professional executive leadership in to maximize growth. The answer to this should dictate who ultimately should purchase your company.
Get your Team of Trusted Advisors in Place
When selling a business, having the right team (aka the “Dream Team”) in place is crucial to maximizing the sale. This team should consist of a business broker/investment banker, a valuation expert, a CPA specializing in mergers and acquisitions, attorneys specializing in mergers and acquisitions, financial advisors, and an estate planning attorney. There may be a hefty price tag for these experts, but it is highly recommended given the complexity of adequately structuring the deal, the desire to retain critical employees, the tax planning, and the legalities of it all.
ML&R Wealth Management can help you learn how to sell a business and gather your team of experts. Our network of professionals is solid, and we have helped many clients sell their businesses over the years.
Truly Understand the Impact of the Sale on Your Personal Finances
Since selling a business isn’t something most get to do more than once in their lifetime, getting it right as it relates to your personal finances is incredibly important. Given your long-term financial goals, it is crucial to understand if the money you make from the sale is enough. For many business owners, getting to the point of a potential sale more than likely means they have reached financial milestones that afford them a desired lifestyle. While a nice big carrot can be dangled in front of you as a business owner, the big question is, will this lump sum of money allow you to sustain your current lifestyle indefinitely, i.e., is it walk-away money? If the answer is no, then maybe it’s not the right time to sell, or you need to get realistic about your lifestyle expenses. Working with a Financial Advisor to explore this is crucial to understanding the longevity of the proceeds from the sale. At ML&R Wealth Management, we can run financial projections and determine where you might stand concerning your goals post-sale.
Start Early and Plan Strategically
It can take years to find the right buyer for your business. Just because someone offers you the highest dollar amount for your business doesn’t always mean they are the right buyer. Depending on your goals, one buyer may be better suited than another. For example, if you have certain company values, more than likely, it is essential to you that whoever buys your company maintains this for your employees and clients. Another example is if you are looking to sell to take your company to the next level, it is important to sell to a company that can potentially maximize this for you. By getting your ducks in a row early, you buy yourself the time to vet potential buyers thoroughly and prepare.
The due diligence that takes place during the sale of the business can be brutal. To make this process go as smoothly as possible, it is vital to be incredibly organized, especially regarding the financials, bookkeeping, operational efficiencies, and documentation. It is during this time that a lot of deals go south and ultimately never close. To keep that from happening, ensure there are no surprises for the potential buyer.
Identify and Communicate Your Role Post-Sale
If you plan on staying involved in the business post-sale, preparing for that is essential for your buyers, employees, and clients.
As it relates to the deal, outlining your ideas on the level of involvement could impact the terms of the deal. Be clear and be realistic. Many business owners struggle to report to someone else after the sale closes. If part of your deal is to stay on board for a period of time, expectations from both parties should be clearly identified so that this time is a positive experience.
In addition, your clients and employees will want to know how this sale will impact them. Being strategic about informing them, honest about the future, and remaining positive will bring confidence to both clients and employees about their future.
Understand The Emotional Impact of Selling Your Business
It is a significant transition to sell your business. If you sold your business to retire, now that you are free from running the day-to-day, figuring out what is next is a great way to avoid feeling a sense of loss around what you have built. If you sold your business to bring in professional leadership, get ready! The amount of work you are about to embark on differs from what you have been used to. Don’t let it overwhelm you. Instead, embrace it and know that this was the point of the sale in the first place. Hopefully, the fruits of your labor will pay off in round two of the sale. Either way, make sure everyone in your household is on the same page about this drastic life change.
Selling a business is a very time-consuming yet fulfilling process. It can also be quite emotional and stressful. Preparing will help relieve some of the burden so you can get across the finish line feeling confident about the future. At ML&R Wealth Management, we have the expertise to help you navigate these details and can help you put the right experts in place to have an overall positive experience before, during, and after the sale. If you have any questions or need assistance, please contact our dedicated team.