You’ve worked hard to build a good business, and now you’re considering selling it. Whether you want to retire with a comfortable lifestyle or move on to new ventures, getting the most value you can from your hard work makes sense. You also want to make the process as smooth as possible. But where do you begin?
Your business represents a considerable investment of money, time, and passion. Because of the importance to your financial and emotional well-being, planning carefully for this event is critical. Business exit planning takes time and thought, but done effectively, it can make a significant difference to your next stage of life.
How to Create an Effective Business Exit Strategy
Business exit planning is the process of developing a strategy to sell the business, or your shares in the business, to the right buyer for the right price. In addition to meeting your own goals and needs, you want to develop an exit plan that sets your business up for continuing success.
Many business founders and owners are so emotionally invested in their business that they don’t want to consider leaving it. However, I believe the biggest mistake you can make in exit planning is to delay it until adverse circumstances like disability, disaster, or disagreements force your hand. Rushing into a sale of your business is likely to limit your options. It doesn’t give you the time and opportunity, for example, to focus on growing your business’s value before the big day. It may limit your ability to prepare your employees or find the best buyer.
So when should you start preparing your business for sale? The best time is now.
How to Sell Your Business: The 5 Essential Steps
Fortunately, there are clear steps you can follow to prepare your business for sale and get it sold.
#1: Determine Your Business’s Value
Determining what your business is worth is a critical initial step for two reasons:
- For your personal financial planning, you want an estimate of what you may earn from selling this significant asset
- A valuation will also help you identify factors influencing the value and changes that may increase its worth before the sale date
There are many ways to value a business, and the best one for you will depend on your company’s age and lifecycle stage, size, industry, specific products or services, location, and more. Because of the complexities involved, it can be a good idea to have help with this step from a CPA or financial professional with expertise in the field.
#2: Make Your Business Attractive to Buyers
When preparing a house for sale, you make necessary repairs and stage it to look its best. Follow a similar process for your business to make it as attractive as possible to buyers.
Some key business exit strategies to enhance your business’s appeal:
- Improve and document operational processes, cutting excess costs where possible
- Strengthen and grow your customer base with initiatives to foster loyalty and expand your market
- Understand and promote your unique positive brand attributes
- Develop and showcase plans for future growth
- Organize your financial records and documentation
- Be prepared with the data a buyer will want for due diligence
#3: Find the Right Buyer and Deal
To find the right buyer, you must first decide what type of buyer you’re looking for. Note that the kind of buyer you’re looking for will also influence the strategies to make your business look more attractive.
- Individual buyers: Looking to run a business themselves, they may be the most cautious and risk averse
- Financial buyers: Mostly private equity groups, focused on the numbers and looking for a high return on investment
- Strategic buyers: Looking for a company that compliments their existing business and fits into their culture; could be a synergistic business or a competitor
- Employees: An employee buyout can promote business continuity and employee morale
Once you’ve found an interested buyer, you want to make the best deal possible. Money is important, but you may have other considerations. Do you want to protect your current employees, ensure that the company continues to reflect your mission and values, give the business the best chance for future growth, etc.? The best way to sell a business is to negotiate fairly on price, payment terms, and other aspects of the deal while protecting your interests.
#4: Structure the Sale for Optimal Legal and Tax Outcomes
This is an important step. You want to proactively ensure that there are no legal issues or unnecessarily large tax bills triggered by your sale. The best way to do this is to partner with professionals who can advise you on the details.
Also note that the earlier you start your business exit plan, the more options you may have for limiting your tax liability, because this begins with your business structure (LLC, C corporation, etc.) and the location of your operations. However, your tax liability will also be affected by the terms of your sale, including the schedule and type of payments you agree to receive.
#5: Close the Deal and Transition Out
There is still some work to do. Once you’ve finalized the sale contract and legal paperwork, with the guidance of your professional advisors, you will want to work with your leadership team to engineer a smooth transition for employees and stakeholders. Some key components of a transition plan are leadership and employee assignment, employee and stakeholder communications and support, data migration, and customer communications.
Take Your First Step: Find a Financial Advisor
The sale of your company is one of the most critical financial initiatives you will ever undertake. Given this importance and the complexity of the process, legal and financial considerations, and impact on your personal wealth, you can benefit from having an experienced professional team by your side.
To find a financial advisor certified in this area, look for one of two special certifications: Certified Exit Planning Advisor (CEPA) or Certified Exit Planner (CExPTM). These certifications are issued by different organizations and have somewhat different requirements, but both indicate special training in helping business owners through succession and exit planning, including maximizing the value of the business before the sale.
At Carson Wealth, we are committed to supporting business owners like you through the succession planning and sale process, helping make it easier and more effective. We recommend looking through our Business Succession Planning Checklist and then giving us a call to help you develop a personalized solution.
To be custom-matched with an advisor you can trust to support your goals with customized planning, explore Carson’s advisor matching program today.
Alex Jensen is not affiliated with Cetera Advisor Networks, LLC.
This communication is designed to provide accurate and authoritative information on the subjects covered. It is not however, intended to provide specific legal, tax, or other professional advice. For specific professional assistance, the services of an appropriate professional should be sought.
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