You’ve worked hard to build your business to where it is today. Whether you are selling your business to move on to other things, or it’s simply time, it’s important to think ahead. As with most things in life, a good plan is very important to have in place.
Strategically look at the sale of your business. Even if you’re not ready to sell just yet, you should be building it with the intention of selling or the possibility of creating a strategic merger. Whether you sell or merge, you want your organization to look appealing to any potential growth opportunity. Many owners don’t prepare in advance for their business to be sold so they miss the opportunity to leverage the sale for themselves, their family, and their employees.
As part of your planning process, consider these five common mistakes many business owners make – so you can avoid them.
Mistake #1. Not planning with the end in mind. It can be hard to think beyond the day-to-day running of your business. Making the decision to sell may happen one day, or over time, but having your plan ready will be important either way. Think about what you can do to fetch the highest value for your business and “who” would likely be a purchaser. Ask yourself these questions:
- What is the value of your brand in the market place?
- What is the tenure of the people on your executive team
- How vested is your team to stay on after you’ve sold?
- What are the most important intangibles of your business that are difficult to replace making it appealing for the purchaser?
Remember, your business is, well, business. As hard is it may seem, you need to keep that in mind. It may feel like your child, but there comes a time when you let the child grow up and move on. Selling your business can give you a means to fulfill other goals you may have on your “bucket list”, whether it’s seed money to start something new, the opportunity to concentrate on something else, or living the life you only dreamed of.
Mistake #2. Not using the right advisors or accessing the right guidance. Selling your business is an important step in your life. Make sure you get good advice as you make your plan.
Get unbiased advice from your financial, accounting and legal advisers. A solid team often yields significant results. Clients often tell us that they did their due diligence when they started their business, but did not do the same in choosing the wealth planning team to plan and manage the life they want to live.
Try to avoid “emotional” biased advice. Because you’ve been strategic, you have the opportunity to weigh opinions and options and can time the sale, prepare your documents, and consider alternatives.
Your team of advisers can help you prepare a strategic, thoughtful financial plan for your business so it thrives after the sale, just as it has thrived under your leadership. Continued performance may be part of the installment sale plan.
Mistake #3. Not knowing what happens after the sale. You’ve made it! The sale has gone through. There will be that first day you do not go to the office. What will you do?
You may have reached this point in your life through a variety of paths. You may have more than one business or want to start a new venture. Maybe your health has changed. It might be time to retire. No matter the reason for changing ownership, after you sell, your life will be different. Be prepared for this change.
How you fulfill your dreams may take many different forms. If you plan to volunteer, check out some of the organizations that interest you to see how you can help. Many people travel. Research the destinations you’d like to visit. Maybe you’d like to work part time for a business or cause that is dear to you. Evaluate those opportunities as well.
Practice what an average day will look like in your new life. Create an agenda and live by it. Make sure you write it down! Our clients have found the gaps in their lives and filled it with many more things they were never able to complete when they had the responsibility of running their business. Don’t let the new time on your hands come as a surprise to you or your family.
Mistake #4. Not thinking about financial implications. Time will be exhausted. Will your finances too?
Just as you have an asset allocation for your investment portfolio, you will also want one for your wealth. All your capital should not be placed in the business. Create “diversifiers” for your money. For instance, you can consider placing assets in real estate and your portfolio.
If you plan to retire when you sell your business you will no longer pay for expenses through the business. Expenses that were once part of your business are now your own personal expenses. You will have to think twice before going to the office supply store, buying the extra service package for your cell phone, or getting those box seats to a show/game. These and other expenses will need to be provided for by your portfolio or other sources of income.
Whether you still own another business or have retired, your taxes will also be impacted. Talk with your financial and tax advisers to discuss the possible tax implications of the sale. This is important when setting up your plan ahead of time.
Another change could be to your income. Hopefully business was good and the sale left you sitting pretty for this next chapter. But you may have less income now. Either way, think about making the most of your sale so it lasts as long as possible to give you the lifestyle you want.
Mistake #5. Not considering alternative approaches to selling your business. Just because you want to sell your business doesn’t mean you have to sell it to some stranger. You could make it part of your legacy planning. When creating your succession plan, you could include the business as part of an inheritance. This way, if you were to die before you retire or sell it yourself, you could still keep it in your family or with key owners.
You can also consider an alternative that keeps you working in the business but lets the ownership get divided. In this case, you could implement an employee stock ownership plan (ESOP). ESOPs provide employees with an ownership interest in the company, giving workers stock ownership, often at no up-front cost to the employees.
Evaluate options and start your plan
You may hope to stay in your business for years or you may be looking at potential buyers or a merger soon. Either way, creating a plan ahead of time can help you make your business attractive when the time comes. By seeking professional guidance and doing some research, you can make these positive changes in your business – and your life – less stressful and more beneficial to all involved.