If you are considering the sale of your business you might want to think about a few things before getting the process started. Whether you’re thinking about selling immediately or within the next 5 years, the sale process can be complex. The good news is that you might be able to cut away some of the complexity with a honed strategic approach and effective planning. Throughout my career I’ve assisted with quite a few business transitions. To illustrate key considerations business owners should ponder, I’ll review a couple common scenarios that I’ve encountered.
Your decision to sell is contingent (in part or completely) on your ability to retire.
If you plan to retire shortly after the sale of your business, before you even begin thinking about selling your business you should determine if you’re able to retire without sacrificing your current quality of life after the sale is complete. Many business owners devote a great deal of time and energy safeguarding the success and longevity of their enterprise. But it’s also vital to remove your “professional hat,” once in a while and put on your “individual hat” to take the time to plan for your personal future and retirement. In most cases, your career and ability to earn determine the landscape of your retirement years. If you haven’t yet created a financial plan, at this point in time it might be helpful to take a step back from the sale of your business to take charge of your financial future.
A financial advisor can help remove some of the burden creating a financial plan by guiding you through the process of analyzing your current financial situation and financial outlook.
A good financial advisor:
- Will take the time to get to know you and thoroughly understand all the layers of your life—not just the financial aspect.
- Should be just as concerned as you to help you reach your financial goals.
- Looks out for your best interests and serves in a fiduciary capacity.
If you already have a financial advisor, and find yourself identifying with the example above, ask your advisor if he or she can provide scenario planning to explore various factors of your financial situation, such as:
- How the timing of the sale can affect your financial outlook. For instance, if you sell now, in 3 years, 5 years, 7 years or more for a certain sum (either cash outright or earn out), might that affect your:
- Retirement possibilities
- Cash flow
- Other buying or selling decisions such as:
- Sell primary residence
- Buy winter property
- Travel extensively
- Make charitable gifts.
- The application of different earn-out scenarios
- The consideration of other forms of liquidity (e.g., bank loan at current low rates).
A scenario planning session can help you garner valuable information that wouldn’t otherwise be available to you, and perhaps help you find the answers to your most pressing questions. Once you’ve evaluated your personal financial situation and aligned it with the possible outcomes of the potential sale of your business, you may be ready to make a decision on whether to pursue this opportunity.
The sale of your business involves multiple owners and/or family members.
This is another common situation that I’ve encountered. If your business is a corporation with other shareholders, you may be likely dealing with different lifestyle choices, financial concerns, outlooks, levels of interest and/or opinions on the sale. It’s important to get everyone on the same page in order to reach an unanimous decision. A financial advisor can work with you to help you build an understanding of options and assist with the facilitation in this process. It might be significantly smoother if each ownership unit is able to participate in the scenario planning review and test the “what-ifs” of the sale. Ideally, each shareholder would also have a personal financial plan in place in order to make an informed decision.
Having the proper tools, information and a good plan are essential to mapping success in any form- personal or professional. Whether or not you decide to move forward with the sale of your business, you should consider outlining a business succession plan to support the well-being of your business in the event unforeseen circumstances occur. And don’t forget to invest time in yourself. Identify your financial goals, create a solid financial plan and stick with it!