If you’ve ever thought of selling your business, Smart Planning Helps the Dream Come True!
On a trip I took last year, I bravely walked through the San Francisco airport wearing a Chiefs jersey. The looks I got were priceless.
There were a few fun shout-outs here and there, but mostly San Fran still seemed a bit sore about losing Super Bowl LIV with an end-of-game flameout.
Joe, behind the airport café counter said, “What a great victory for Kansas City and depressing loss for San Francisco — right when the 49ers had victory within their grasp! This is gonna hurt for a while.”
Sure, San Francisco played a good three and a half quarters, but they succumbed late in the game to Mahomes’ Magic and Coach Reid’s system. This left them empty handed in the end.
The 49ers failure to finish strong serves as a lesson not just for football, but for entrepreneurs looking for their successful finish. You must play all four quarters tough and smart to the very end. Three and a half just won’t get the job done.
So, if you’re somewhere in the first few quarters of your business and would consider it a big win to sell your company at the end of the fourth — whatever timeframe that is for you — there are important steps you need to be taking now to prepare for that important victory.
Seven Topics to Consider Before Selling
Sure, someone could come along out of the blue and offer you millions for your business. But let’s face reality, most of us won’t be that fortunate. The truth is that selling a business at the right time for the right price takes significant planning and patience.
The effort is well worth it though, because you will end up with a solid plan that can be updated regularly — inspiring you to look to the future with excitement instead of dread.
Here are seven topics to consider as you get started.
Employee Benefits: High-performing employees are crucial to your business. Keeping them should be a top priority for both your current success and future plans to sell. A great staff that can run the business without you is a big selling point to many potential buyers. Accordingly, your employee benefits plan should be competitive, and you should continually create clear paths for employee growth and success.
Business Valuation: This is one of the toughest issues because many business owners have a false sense of what their business is worth. A professional valuation is the foundational document you will need to outline a legitimate selling price and the underlying methodology. This valuation will be the basis for your estate planning, the process for buying out a partner, and to help make insurance decisions (property and casualty, disability, life, and umbrella).
Leadership Transition: How will your business be operated after you sell? Will a family member buy the business? If so, have you been grooming him or her to take over after the buyout? Will you sell the business to your employees or to an outside third party, such as a private equity firm?
There are many questions to consider and various directions to take. For example, if you are thinking of selling to employees, you’ll need to determine whether they collectively have enough personal wealth or credit to obtain a bank loan for the purchase.
You’ll also want to keep the process quiet until you’ve made a decision about how to proceed. These processes can be unsettling to staff and customers if not properly handled.
Legal Documents: It’s probably time to update your legal documents. Heck, when was the last time you actually read your operating agreement?!
I had a client who started a business in the late 80s and was still running the multi-million-dollar enterprise decades later. His original operating agreement did not mention his wife, children, or current business partners. Had anything happened to him before updating things, the family would have wasted tons of time and money sorting things out.
Protect Your Family: So many times, entrepreneurs start businesses, achieve success, and keep reinvesting in growing the business. They forget to stop and think about those most important to us — our family. You protect your family by having employment contracts with key employees. A defined life insurance plan can help replace your income. A predetermined leadership plan will allow someone to step in to run the business if needed.
Processes and Procedures: One of the easiest mistakes to make is to keep working and running your business out of your head and the brains of your staff, without proper documentation of processes and procedures. At the moment, it doesn’t seem important, but what happens if a key employee leaves? Your business will probably be valued much lower if your policies are inconsistent, not in writing, or not followed in your day-to-day business. Having standards for potential new owners to rely on is one of the keys to earning a higher selling price.
Choosing Your Exit Audience: Some businesses simply close up shop as they wind down. Others are sold to family members or employees. From my experience, selling to family or employees typically nets a lower sale price for the business owner due to the personal factors involved. Some owners hire an investment banker and find a third-party buyer. This can be a lengthy process, but it may be the best if top dollar is the most important consideration.
A Great Team Makes a Big-League Difference
Planning to sell your business the right way can be exciting, but there are potential pitfalls. It would be wise to find a highly competent team that will work with you to stress-test your current plan (if you have one). The same kind of team also can help you start from scratch if need be. Walking you professionally through each step, with an eye on your unique goals.
If you make the time to plan and surround yourself with the proper network, when it comes to selling your business, you’ll finish the fourth quarter as strong as the 2020 Kansas City Chiefs. Avoiding the sad fate of those 49ers who failed to close the deal in the final few minutes of the biggest game of their lives.
Bryan A. Sarff, CFP® is the Founder and CEO of True Wealth & Company, LLC, an investment advisory firm in Overland Park, Kansas. Sarff and his company do not provide tax or legal advice. You should consult with a tax professional or attorney regarding your specific situation. Investment advisory services offered through True Wealth & Company, LLC, a registered investment advisor located in the state of Kansas.