Whenever you begin to think about selling a business, it’s important to figure out why you want to sell. That might mean getting a pile of money, freeing up time, or finding something more interesting to do. Understanding the “why” can help you make better strategic decisions regarding how to structure the sale.
Sometimes the answer is obvious. If you’ve been running the same business for 30 years, or if health- or age-related limitations make it harder to keep up with business demands, then retirement may be a big motivation. If so, your goals likely will be to maximize the value of the business – which may take several years of pre-sale planning – and to minimize the amount of seller financing to ensure a secure source of retirement assets.
But retirement is not the only scenario prompting a business sale. Some owners experience friction with a partner and don’t want to continue working together. Others get bored and want to start a new venture. That’s often the case with “serial” entrepreneurs, who move from one business to the next. And some owners simply want more free time to spend with families or pursue other activities such as extended travel or community service.
Regardless of your particular reason, it’s important for a seller to be able to present a plausible explanation when marketing the business to prospective buyers. Buyers want to perceive value in the business they are spending good money to acquire. It’s not too early to begin thinking about your reason(s) for a sale.
Business owners often underestimate the emotional as well as financial ties connecting them to their business. For many owners, the business is their identity. If that’s the case, planning a new life after the business may be as important as planning the sale itself. Some questions to ask yourself:
• What will you do with all your time that was previously spent at work?
• Do you have hobbies or travel plans?
• Is there a volunteer organization that needs your skills?
• Are you going to start a brand new business?
• And will you have enough money to live on?
When selling a business, timing is everything. Ideally, you will sell when the business is healthy and growing. An owner who can’t let go may miss selling opportunities due to changing market conditions. Or he or she may lose focus and allow the business to decline, thus reducing its value. Do you have enough drive to continue building your business, or at least maintain it at current levels?
Financial considerations also can get in the way. Many sellers don’t have other sources of potential retirement income outside of the business. And if other family members are part of the business, a seller may postpone sale plans to maintain a steady paycheck for those family members.
Prioritize which items are most important in the sale. Is it maximizing immediate cash? Ensuring a stream of income over time? Providing continued employment or transition for key employees? Every sale involves negotiation, so identify what’s critical and build your strategy to obtain those results.
Welcome to the inaugural post of Sell Your Business for More, a new blog which will focus on the when, how, and why of selling a business. We’ll cover a lot of ground along the way, with helpful tips and warnings about traps to maximize the value of your business and position yourself to best achieve your goals.
Topics will include the timing of a sale, how to structure the transaction, and steps to take in the time leading up to the sale to allow for a smooth exit. And with the privilege of editorial discretion, we’ll more than likely meander off into some other discussions too.
As part of the blogosphere, we’ll also be on the lookout for helpful links to other blogs and resources. We are hoping to post contributions from guest bloggers on tax planning, marketing, valuation methods, and other related issues which fall outside of our professional expertise. But most of all, we’ll be looking to engage you, the reader, to find out what resonates, what doesn’t, and how we can help you run your business better.
At this point, we’re thinking about posting blog entries twice a week, most likely on Tuesday and Thursday. We’re excited to engage readers in a slightly different medium and hope that you will provide feedback in the form of comments, questions, or requests for specific topics. Our monthly e-newsletter will continue with articles of general interest to business owners.