Banking & Finance

Are you ready to sell your business?

November 29, 2017
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Each business owner is motivated by different factors and, at some point, must consider the method and timing of a transition from their business. A common goal for many is to continue to build the value of their business until, and at some defined moment, they determine it is time to sell or to transition internally.

In the current economic environment with the availability of cash, eager investors and organizations that desire to buy into growth opportunities, now may be an excellent time to sell a business with the intent to maximize proceeds.

At a time when over 60 percent of businesses are owned by baby boomers and where approximately 76 percent of these boomer owners intend to transition from their business in the next 10 years, almost half of all businesses could be transitioning ownership before 2030. How does a business owner know when they, and their business, are ready?

More than a desire for a big payday is needed to decide that your business is ready to sell or transition in another way. If the end goal is to be acquired at a maximum multiple with an optimum deal structure and proceeds, a number of considerations must be addressed to determine whether you are ready.

A key factor in having a ready and attractive business includes a strong and committed leadership team. This involves identifying and developing key successors and staff, which may include providing them with training opportunities, growth plans and incentive programs. These elements prepare them for future roles and retain them with the organization for the long term. Businesses that have competent leaders with clearly defined roles and expectations, cohesive teams and who are independent from the day-to-day oversight of the business owner, experience an average of two to three times higher multiples and therefore an optimum sales price. These businesses also are more prepared, likely to have a successful sale and integrate well into the new organization structure — regardless of internal or external transactions. This is particularly true if the new owners plan or expect the current owner and/or leadership team to remain on board for a period of time after the transition event occurs.

Every business transaction is unique, whether due to size, industry and the perspective or personality of the owner(s). Transitions may take as little as six months, evolve over two to three years or perhaps occur over an even longer horizon. A few key factors related to timing include:

  • Legal protections and structure
  • Status of current employees and leadership
  • Systems and processes
  • Owner independence
  • Market supply and demand
  • Competition and/or barriers to entry
  • Ability to scale
  • Condition of property and equipment
  • Transferability of intellectual property

Prior to selling or transitioning internally, a business owner must have a plan in place for what comes after the sale is complete — the life after. Only 13 percent of individuals who sell their business have completed a written and communicated post-transition plan, and even fewer think about life after the transition once they begin negotiating terms.

Navigating the transition process is complex, time consuming and has a significant impact on all those involved with, and touched by, the transaction. For the majority of business owners, selling their company is a one-time event and very likely the biggest decision they will face in their lifetime. To ensure the best possible outcome, business owners should work with a qualified team of advisors that has experience in business transactions. They should make sure their personal financial well-being is a priority and is protected throughout the entire process of transition.

Transition specialists coordinate with all team members and provide consideration and benefit to both the buyer and the seller as they work through the dynamics and details of the process. A written, communicated plan is a very effective way to position the business and develop a smooth and successful transition.

It is never too early to prepare and strategically position your business, employees and family for future changes. A strong plan, put in place early, ensures better outcomes when the time arrives to enjoy the next leg of your journey.

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