Typically, this comes down to two options: close it down or sell. After years of building and maintaining a business, selling is usually a more financially and emotionally appealing strategy than closing the business you worked so hard to build.
In this article, we define the initial steps to take when preparing to sell your business in order to ensure a smooth process and a fair sale price.
Determine what will drive the sale. Will it be the highest price? Transitioning to a trusted manager/key employee? Transitioning to the next generation? Or some combination of these? Whatever it is, this important first step will drive the process and many other decisions.
Find a facilitator to work with. This could be a business broker or investment banker who specializes in the purchase and sale of businesses and will be able to outline, then guide you through each step of the process, and finally negotiate the terms of the sale.
Obtain a valuation by a third party. A business valuation will provide you with an estimate for the current economic value of your company and will drive the pricing for the sale. Multiple business valuation methods exist; which one is right for you will depend on the type of business. A business broker will be able to assist in obtaining a valuation.
Ensure all financials are in order. This should begin 2-3 years prior to the sale. By normalizing your financial statements, you will ensure a clear picture of your business income for potential buyers. This process includes identifying any personal expenses run through the business, specifying salaries and benefits, and clearly stating all depreciation, amortization and non-operating expenses or income.
Decide on an exit strategy. Consider how you will wind down your involvement in the business during the transition period following the sale. Defining your exit strategy will not only help you prepare logistically for the change in ownership but can also help with your emotional transition into retirement.
The key to a successful sale and transition is long-term planning. This process can take a significant amount of time and energy. It is important to take your time and work with a professional.
Equally important to the logistical preparation is your emotional preparation. Transitioning into retirement can be difficult, but even more so when you have been operating your own business for a long time beforehand. The adjustment that comes with handing over operations to someone else can be significant, even if you feel ready. Preparing well ahead of time and transitioning slowly can help mitigate the impact of this life change. Here’s a test: turn over your business card to the blank side. Now write in what you want it to read!
The sale of your business will also impact your financial plan. In addition to updating your financial plan to see how different sale prices may impact your retirement and estate plans, your Freestone Client Advisor can assist you through this process, ensuring that you have the necessary tools and professional guidance to make the process as smooth and financially beneficial as possible.