Exit Planning For Business Owners

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7 Tips For Selling A Business

Successful business owners spend hours managing their businesses’ day to day, but they rarely give thought to when—and how—they might exit their business. This can be problematic since their retirement funds are often tied up in the equity of their business. So, when it comes time to sell—if that ’s how they choose to exit—how can they maximize what they sell it for, thereby ensuring a comfortable retirement?

  1. Start at least 3-5 years in advanceIt’s not uncommon for business owners to receive unsolicited offers, so make sure your business is ready to sell even if you’re not. Otherwise you risk leaving money on the table or missing an opportunity that might never be presented again.Ideally, you should be planning for a potential sale from day one. However, since that’s not always possible, start thinking about the process at least three to five years before the projected sale.
  2. Value your business appropriately and implement strategies to increase its valueThe first step in valuing your business is to determine where it stands financially. Ask yourself: Are my financial statements audited and in order? Are there outstanding loans and debt that could devalue my business? Taking a look at the business’s financial standing, including compiling all necessary files and paperwork in an easily accessible format, must be done to set a sale in motion.When analyzing the health of your business, determine whether it can run independently of you. A good indicator is whether you’ve taken a two- to three week vacation recently. If not, the business doesn’t run independently of you—a factor that could ultimately devalue it.
  3. Build a team of competent advisorsBefore weighing any offers or conveying your desire to sell, build a team that can guide you through this process. You’ll need CPAs, financial planners, attorneys and investment bankers in your corner as you prepare to sell.Select one advisor that you feel has his or her interests best aligned with yours. This will normally be someone who is a relationship-based advisor as opposed to a transactional-based advisor. This is the advisor you should name the quarterback of your team—the one who will act as the intermediary to ensure that the rest of your team is on the same page.Seek advisors who have experience with exit planning in your particular industry. Don’t be afraid to be picky when it comes to assembling your team.
  4. Create your financial plan before approaching buyersUnderstanding both your financial and non-financial objectives is extremely important. Identifying your financial needs to accomplish those objectives is a necessary step in this process. Don’t wait too long to engage a wealth manager because the best investment, tax and estate planning happens well before the liquidity event.When meeting with your wealth manager, discuss how much you need your business to sell for to ensure that work remains optional after retiring. That money should be set aside in an untouchable bucket—out of sight, out of mind.
  5. Compile a list of potential buyersOnce you know what you want to sell for, compile a list of potential buyers. Normally that list includes both insiders (e.g., family members or employees and third-party buyers (e.g., vendors, competitors, customers). It helps to begin with a longer list of potential buyers that can later be narrowed down.
  6. Weigh the offers and sell wellAim to get as much cash up front, by opting for less contingency payments, less earn out payments and no stock. If you’re selling to an insider, there are strategies to creatively extract the liquidity from the business that you need to retire on while simultaneously turning those interests to a key insider.
  7. Imagine your post-sale lifeBefore exiting, ask yourself what you want to do after you sell. Since many entrepreneurs transition from acting as manager and doling out responsibilities to a quiet retirement with few responsibilities, it’s important to prepare for the emotional aspect of leaving the business and the workforce.Be aware that from start to finish, this process takes a considerable amount of time, and deciding when and how to sell your business is a significant undertaking. With proper planning and guidance, you can be sure that you’re positioning your business and yourself for success.
About Mark Tepper 1 Article
Mark Tepper, CFP, is president and founder of Strategic Wealth Partners in Seven Hills, Ohio, a omprehensive wealth management firm that specializes in planning for small business owners. Tepper has conducted extensive research with entrepreneurs, particularly examining the challenges they face in planning their exit and personal finances. For more information, visit: www.swp-ohio.com.

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