“If someone came in with a wheelbarrow full of money, I would sell tomorrow!” Sound familiar? Business owners utter this or similar phrases each and every day. The reality is that the person with all of that “crazy” money isn’t coming through the door. In fact, the people that may be interested in your business will probably arrive with advisors and a formula to assign a value to your priceless (to you, anyway) business. Are you ready for them? Do you know the value of your company? If retiring, how much do you need for retirement? Can you finance a sale? Is your team of advisors prepared to support you?
First, if you are a business owner, then what is your motivation to sell? The most common scenarios are: Retirement of the primary shareholder; Competitive pressures; Death or illness of the owner; Financial difficulties; Readiness of heirs to take control of the business; or Desire for liquidity and asset diversification on the part of the primary shareholder. Each owner’s reasons fall into a different category or combination thereof and so the approach going forward will be different for each situation.
Let’s review the most common scenario of an owner selling a business for retirement purposes. Many considerations need to be taken into account including: the amount of income needed to fund retirement; the value of the business and the relationship to retirement funding; the target audience for the sale whether internal (family, partners or employees) or external; the need and ability of the owner to work through a transition period with the new owner(s); and, most importantly, the readiness of the owner to retire. These are the prevailing issues in the majority of privately held company sales. If not addressed early with a firm plan, then the chances of a deal completed to the satisfaction of the interested parties is reduced substantially. Emergency situations occur, but business owners should take the time and commitment to resolving the above questions before initiating the sales process.
After careful deliberation in laying out a plan to sell the company an owner is disappointed in that while the initial suitors all meet the desired profile, the offers are woefully short of expectations. Are the interested buyers attempting to take advantage of the business owner or is the owner unrealistic in their value of the company? In over 50% of the cases, the business owners overestimated the value of their firms according the Exit Planning Institute. However, a combination of negotiating strategy and owner expectations may both affect the starting point of negotiations which leads us to our next point…
Have a team of experienced advisors assist you with the planning and negotiation processes. Business owners will typically focus on the “big number” (sales price) and give away far too many concessions in the details of the final sales agreement. Working with experienced professionals will provide insight on current market trends with regard to price and structure and, working with the team, will maximize your opportunity to meet all of your financial, business and personal goals.
This is but an overview of the many considerations a business owner should reflect on before and during the sale of their company – especially when planning for retirement. The Executive Influence has the experience and professional business partners to advise and guide owners to a successful business sales transaction. We understand the importance and legacy of the owners as they approach retirement. Contact us to begin a confidential and discreet discussion.