6 Steps to Successfully Selling a Business in the “Exit Bubble®”

Recognize the challenges you are facing in the Exit Bubble®
The first step in solving a problem is to recognize there is a problem. The baby boomers have created challenges and opportunities each decade they’ve reached, including starting an unprecedented number of new businesses in the 1970s and 1980s. Now, the time has come for them to exit their businesses, and for the first time, there will not be enough buyers to purchase those businesses. It’s not like previous generations where there was always someone willing and able to buy your company, and planning for retirement was focused mainly on long overdue trips with your spouse. It’s predicted there will be almost twice the number of sellers than buyers over the next decade, primarily due to the sheer numbers of baby boomer business owners. Even if you’re planning to transition your business to the next generation instead of selling, you may find that your heirs don’t want the business or they’re simply not capable of taking it over. All of this means that you need to begin preparing NOW for how you want to exit your business to ensure you successfully exit your business on YOUR terms.

Prepare yourself – emotionally and financially
Don’t let the word “emotionally” scare you away from this critical step in your exit process. One of the biggest reasons that business owners don’t exit successfully is they don’t know what they’ll do next. They can’t imagine not being the owner of “XYZ Company.” Taking time to figure out who you’ll be after you leave your business will increase the odds of a successful exit.

Preparing yourself financially does not just mean creating a will and estate plan. You need to understand how you will replace your income after your income-generating asset (your business) is gone and what you need to live on for several years into the future. Many business owners suffer from the misconception that they will spend less in retirement and find themselves in the unfortunate position of having to go back to work and “earn it all again.” Take the time to figure out what you want and need financially before you begin the exit process.

Prepare your business
If you own a successful business, you may assume that someone will be willing to pay your asking price for the business. After all, you’ve spent years of hard work and financial investment to make it a success. You know everything about the business. You’ve been living it for years, and you’re confident in the value. The challenge is that a future owner won’t understand the business as well. They may not be comfortable with the fact that your largest customer pays late every month, but always pays. That may be a risk they’re not willing to take or that will cause them to reduce the business valuation. You must begin to look at your business through the eyes of a buyer. How will a buyer view risks in your business? What are the value drivers and detractors of your business? Are there areas where you could improve the value of your business, and are you willing or able to make those improvements? These are critical questions as you prepare your business for sale. You may decide to spend more time preparing your business before you begin the sale process in order to achieve the goals you set for you and your family post-exit.

Hire the “right” advisors
You know your neighbour who is a CPA and has done your taxes for twenty years? What about your real estate attorney that you’ve worked with for years? They’re certainly competent but may not be the right advisors to help you sell your business. You want advisors with significant experience helping business owners actually sell their business – preferably in your industry. The right advisors can keep you on an even footing with potential buyers who are likely seasoned professionals at acquiring companies just like yours. Spend the time and money to hire the right advisors for your transaction. It could be the most important investment you make.

Develop your communication plan
“I hear you’re selling your business. Should I start looking for another supplier?” No matter how hard you try to keep your transaction a secret, you will likely get this question from a customer before you want to answer it. If you haven’t prepared for this inevitable question, a seemingly innocent response may result in losing your largest customer and leaving you with a big hole in your revenue projections.  Managers, employees, customers, suppliers, shareholders, neighbors – you have to prepare for their questions at each stage of your process. Quite possibly the most important question you need to prepare for is the potential buyer asking “What are you planning to do after you sell?” This may seem like an innocent question over dinner, but if you don’t have a clear answer, that potential buyer may worry that you won’t go through with the transaction and decide not to pursue your company. Prepare your communication plan BEFORE you begin your exit process.

Successfully navigate the exit process
Whether you’re selling your business or transitioning it to the next generation, it will be difficult to leave the business you’ve built and nurtured. Educating yourself on the complexities of whatever exit option you choose will go a long way in controlling the emotional rollercoaster of exiting your business. Selling business owners often fail to recognize there is actually a formal sale process they must follow, and they make mistakes that cost them both time and money. Selecting the best transaction structure, negotiating the letter of intent, and getting through the often “painful” due diligence process, are all critical steps in the sale process. The right advisors are critical in helping you avoid costly mistakes, and being prepared with a communication plan will help eliminate unnecessary surprises along the way.

May 7, 2014
By Tensie Homan