Selling your business can be a process filled with a lot of frustrating stops and starts. You may think you’re ready to sell, then find you aren’t as prepared to move on as you thought. You may assume you’ve found the perfect buyer, but negotiations break down and they walk. Or perhaps you find that the market won’t bear as high a price as you expected for your company. All of these issues can cause a business sale to screech to a halt.
As we work with exiting business owners, however, we’ve noticed some common stumbling blocks that can contribute to a failed—or unnecessarily stressful–business sale. We’ve also come to see that sellers who successfully manage these six key challenges are more likely to sell their companies in a timely and profitable way:
• Obstacle: Remaining “irreplaceable” within your company.
Well before you put your company up for sale, you should be both grooming your successor team and “institutionalizing” clients so they are used to working with company representatives other than you.
As your company goes through your sale transition, you have a much better chance of retaining clients if they are loyal to your company rather than to you personally or other specific employees. The same is true of vendors: The relationship going forward should be with your company as a whole rather than just with you.
• Obstacle: Not taking time to plan your future.
Leaving the company you may have built from scratch isn’t easy. That’s why it’s critically important to think now—long before you put your business up for sale—about what you’ll do after closing the transaction.
Be as specific as you can: Will you start another business? Embark on worldwide travel? Volunteer for a particular organization? We can’t stress this enough: While you’re in the stressful middle of a sale is not the right time to realize you don’t know what you’re going to do with your life. It can negatively affect the way you make sale decisions. Bottom line: Don’t put your company on the market until your future plans are clear.
Remember: You will likely have a contingency payment from your buyer that depends on your company maintaining or increasing revenues several years after your sale. Solidifying client relationships—and making sure they don’t depend on you—is an important pre-sale task.
• Obstacle: Not reviewing your personal financials in advance.
Can you realistically afford to live on the proceeds from your company sale and your other investments? Work with your Wealth Advisor to determine what you’ll likely spend in “retirement” and whether your business sale price will make that possible.
If your company’s valuation price isn’t high enough to meet your needs, you still have some choices—as long as you consider your options before selling your business. For instance, you might decide to stay in the business for a few more years. You might look into ways to grow the business so it’s worth more in a few short years. You could bring in an outside consultant to help evaluate your options. The earlier you do so, the more time you have to amend your plans.
• Obstacle: Not surrounding yourself with a strong advisory team.
Growing your company probably wasn’t a solo effort—and selling it won’t be, either. It’s wise to assemble a good team of professionals (usually outside your firm) to help you through the sale process. That typically includes a financial advisor, corporate attorney and investment banker. A strong team will help you think clearly and keep the sale process moving along.
• Obstacle: Keeping your successor team in the dark about the sale.
Inexperienced owners may be tempted to only let their team know about the sale at the last minute. They may worry that the transition will cause key individuals to jump ship or embark on internal tugs-of-war.
In reality, the sooner you include your successor team in on the news, the better. They’re more likely to feel like they have a stake in the process and can often offer options and ideas that may be helpful. An informed team is generally a more supportive team.
• Obstacle: Falling prey to “negotiation fatigue.”
Dealing with a potential buyer is a major task that can be as draining as your regular work. However, you need to clear time in your schedule to prioritize it.
A sale is more like a marathon than a sprint. Savvy sellers plan that the process could take as much as a year or two: You’ll screen potential buyers, pick a finalist, then begin a due-diligence phase that includes a confidentiality/exclusivity period. After that, you may have numerous rounds of contract negotiations before signing an actual purchase-sale agreement.
This also implies that you should embark on a sale well before you actually want to leave your firm. Buyers may fall through, leaving you to start the process over. The more time you have, the less likely you are to be bullied by the buyer’s terms.
Your RegentAtlantic Wealth Advisor can be a helpful resource as you prepare to sell your business—reminding you of these common obstacles and how to overcome them. In a future blog, we’ll talk about another key part of the sale process: Understanding what your buyer is thinking.
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