Thinking about selling your business? 5 questions you need to answer NOW.

Now that tax season is over and you’ve come up for air, is it time to think about when you’re going to exit your business? Whether you’re planning to sell your business this year or five years from now, it’s important to be able to answer these critical questions before you start the sale process.

 

  1. What will I do after I sell?
    Business owners often don’t think about this question until right before they sell their business. They get to the closing table and the fear of the unknown is simply too much – they walk away from the deal. Not knowing what you’ll do after you sell is one of the top reasons a business sale fails. Take the time now to figure out who you’ll be when you’re no longer the “Owner of ABC Company.” How will you spend your time when you’re not living and breathing your business? If you have a clear view of your life after you sell, it’s much easier to handle the emotional roller coaster of leaving a business you’ve poured your heart and soul into.
  1. How much do I need from the sale of my business?
    Once you’ve answered what you’re planning to do after you sell, you’ll need to figure out how much you’ll need to achieve your plans. Many business owners throw out a number that sounds more than enough, but they haven’t really taken the time to figure out what they need and want to live on for the rest of their lives. Be careful not to confuse “net worth” with “income” in your financial planning process. Your business has been your income-generating asset. How will you replace that income, and how long does it need to last? You’ll need to consider health care, long-term care, car payments, mortgage(s), day-to-day bills, possibly children’s college expenses, plus all the things you and your spouse want to do once you’ve sold your business. Find an experienced financial advisor who can help you address these critical issues before you get too far along in the sale process.
  1. Business CompanionWhat’s my business worth?
    This is generally the first question you will ask when thinking about selling, and it’s certainly important. However, if you haven’t answered the first two questions above, how will you know if the value of your business is enough to support your lifestyle after you sell? After all, you haven’t worked for all these years for nothing. You want the net proceeds from your business to provide for the life that you and your family are planning. Remember to always use your “net proceeds” (proceeds from sale after taxes, transaction fees and pay down of debt) to compare to your financial needs to see if there is a gap.

    Determining a true value for your business can be challenging and requires you to view your business through the eyes of the buyer. You know your business inside and out, but a potential buyer will be starting from ground zero. Areas you perceive as strengths could be considered weaknesses by a buyer. Changing your perspective is difficult and can be challenging. Give yourself enough time to objectively value your business and make changes that could improve the value of your business in the eyes of the buyer. You want to be sure you can close any gap between your net proceeds and your financial needs post-sale.

  1. When do I WANT to sell my business?
    As with most things in life, timing is everything when selling a business. You may decide you want to sell in the next three to five years. Maybe you need to sell sooner. Regardless of your timeframe, you need to have a plan. Put a stake in the ground and select a date now, so you can start planning for the event. Answering the first three questions above will help you determine that date. Having an idea of what you’ll do after you sell and comparing how much you’ll need to live on with the expected net proceeds from the sale should help you decide how much time you need to prepare your business for sale (i.e., maximize the value of your business).
Sometimes you may not have a choice. Either you need to sell for personal reasons, or you find that you can take advantage of an unexpected opportunity in the market. Regardless of when you think you’ll sell, it’s never too early to start planning. You don’t want to miss out on an opportunity because you and your business weren’t prepared.
  1. Who should help me sell my business?
    As business owners, we don’t like spending money. Especially when we feel we’re not getting anything “tangible” for the cost. You will likely only sell a business once in your lifetime, but your buyers could be seasoned professionals at buying companies. To stay on a level playing field, you’ll need advisors (e.g., financial advisor, attorney, CPA, business broker/investment banker) who have experience selling businesses like yours and preferably in your industry. Your current advisors may be very qualified for the services they provide you, but how experienced are they with the complexities of selling a business? Avoid hiring advisors you currently work with or have met in the community simply because you know them and they seem like good people. Do your due diligence and ask them about their relevant experience. This could be the most important investment you can make in your future.
April 16, 2014 
By Tensie Homan