Contemplating a Sale of your Business

You want to sell your business and retire or perhaps you want to explore other interests. Most business owners may have spent a majority of their adult life building the business, but quite often, they have not thought of a coherent business exit strategy. Add the woes of the current market environment where credit is scarce, there are few good buyers and bids presented are appear to be too low, it becomes important that you create a carefully crafted exit plan. There are numerous aspects to an exit plan. Here are the three points that can get you started on the process.

Keys to Successful Exit

Ask yourself the question” Why do I want to sell my business?” It’s important to achieve clarity of purpose. Knowing exactly what you want and need from the sale of your business may define the structure of the sale.  For most business owners, their business represents their single largest financial asset.  The owners connections to the business are both financial and emotional. Most transactional business brokers or investment bankers get paid from the proceeds of the sale and their desire to complete the transaction sometimes interferes with the interests of the business owner. There is an assumption by such brokers that all business owners want to sell their business for the maximum dollar possible.  You may prefer to sell your business to your key employee for less money because you know she will continue your vision for the business. Or perhaps you would like to keep a limited involvement in the business so you can continue to enjoy some revenue or provide the benefit of your wisdom to the continued success of the company.

Next ask the question “When?” Sometimes the right answer is not to sell immediately. Take steps to increase the value of your business before you put it up for sale. Get your books in order is a good place to start. Then there are intangibles to consider. Most often there are hidden strengths and values within your company that have not been fully monetized.  For example: over the years, you may have rejected many revenue generating models and components for your business as it did not fit your vision for the firm. However, once you begin to contemplate sale of your business, this may be a good time to re-consider such decisions. Perhaps you may want to add strategic partnerships and sales channels or perhaps a personnel repositioning that is more in alignment with current industry practices.   A skilled management consultant may be able to identify areas that can be improved upon quickly without substantial investment of resources.

“Getting your team together”: As you position your business for a potential sale, there are obvious participants that will ensure a smooth business transaction – your legal and accounting teams, your investment banker and trusted financial advisor.  However, one should also consider other members as part of their team.  Depending on whether you will continue to play a role in the firms’ activities after the sale, you may want to position the right people such that it will maximize your benefits of the sale and allow you participation in the firms activities without the hassles of everyday running of a company? You may have far less influence in such positioning after the sale is completed. By thinking ahead, you may even negotiate terms of the sale such that key members of your “post-sale” team retain their responsibilities for a fixed time into the future.

When the focus is on the value of the transaction or the sale alone, in my 18 years of experience as a financial advisor, I have noticed that  it is very typical for many business owners to feel bad after the transaction is over. Sometimes it’s a feeling that they could have done a better job; not just monetarily but success in other aspect as well. By thinking and planning ahead of time, the transaction could instead become a very rewarding experience.

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