In my role as a wealth advisor, I am fortunate to count many business owners as clients. If you’re reading this blog post, there’s a good chance you’re one of them. Well, as all business owners know, most ventures (like most things in life) have three stages: a beginning, a middle, and an end—or, what we’ll call here, an exit.
A lucrative exit is what many entrepreneurs dream of from the moment they launch their business. Selling your company (ideally for top dollar) can put you in great financial shape, allow you to take on another challenge, and give back to worthy causes.
Here’s the thing, though: Selling a business takes foresight, knowledge, and preparation. That adage, “If you fail to plan, you’re planning to fail” applies in spades when it comes to your business exit.
To help you prep your business for its eventual sale, here are some tips to consider.
- Plan Early
Many business owners don’t realize just how far in advance they should be planning for their exit. A very successful owner I know likes to say that you should start thinking about your exit the moment you start a company. That doesn’t mean you will sell in short order, of course. But at least having your exit in the back of your mind can make the eventual sales process—and final price—the best it can be.
Businesses (especially ones valued at over $30 million) are not sold overnight. Indeed, preparing a minimum of 5 years in advance is advisable. The last thing you want is a rushed sale because that gives potential buyers leverage as they sense desperation. Rushed sales tend to equal lower selling prices, which you obviously are keen to avoid.
The sales process can be lengthy, in part because you need to get your ducks in a row before going to market. That means having a good corporate structure, clean books, and ensuring the business is well structured from a tax standpoint.
- Identify Potential Buyers
You’ll want to give a fair bit of thought to who could buy your business. Potential buyers will fall into one of three categories:
- A family member
- A current employee
- A third party
In thinking about who to eventually sell to, most business owners keep financial and non-financial factors in mind. The financial motivation is usually the highest sale price, but details such as the manner of the purchase are also important. For example, will there be a one-time payment, or many payments spread over many years? Non-financial factors may matter to you as well. These could include the job security of your employees, or whether you think a particular buyer will be a good steward for what you created.
- Build Your Exit Team
To make your (exit) dream work, you need teamwork. Here are some of the key players that can make a successful sale a reality, and the role they play:
- Business Valuator
- Accountant
- Tax lawyer
- Investment Bankers
- Wealth Advisor
Having a ‘Quarterback’ at each stage of the sales process is essential. At the start, your Business Valuator may be the QB, taking charge of figuring out what your business is worth. The QB can change as the process goes on, but collaboration among your Exit Team should be a constant. A lack of collaboration—and coordination—can have negative consequences for the sale.
- Don’t Forget About Estate Planning
Estate planning can trigger thoughts about our own mortality. But done right, it can give you peace of mind. So, when it comes to your business, you’ll want to know that if something happens to you, your assets are disbursed in the manner you desire.
If you don’t already have a will that has been written by an estate lawyer, that should be a priority. You may also want to structure your estate such that any offspring will own the business via trusts— thereby protecting the family’s control of the venture for the foreseeable future.
How a Wealth Advisor Helps
Estate planning also comes into play when you’re deciding how to invest the proceeds of a successful sale. As your wealth advisor, I’m here to help you in this regard.
If you ever want more information on how to prep your business for an exit, feel free to reach out. My book, Exit Strategy, goes into much more detail, and I’d be happy to discuss your unique situation.