At some point in time, every business owner contemplates selling. That may be in the early stages when it seems profits will never start, or the middle when the hectic schedule makes time off seem impossible, or it may be as age creeps in and time with friends, family, and even with hobbies is preferable to days in the office. Whenever the time or whatever the reason, selling a business takes planning, patience, and a good team to guide you through. How do you find the correct structure to ensure a successful exit strategy that provides a sound financial future?
Plan To Exit Before You Need To
Even before a decision is made to sell, wise business owners will have a contingency plan in case the unforeseen occurs and they can no longer run the show. According to the Motley Fool, a business should really determine its value annually to enable better retirement planning and to be ready to respond to that unforeseen event. The exit strategy should identify who takes over the day-to-day operations, any threats to a successful turnover and how they can be overcome, and how to assure your family will be financially secure. There are many considerations with each choice which is why creating an exit strategy will be much more efficient with the help of a financial advisor.
Time To Sell
If selling is on your mind the first question might be when is the right time to sell? That answer is personal to some extent, but some hard truths must come into play. Look towards your profit and loss. If growth has been steady, the market is stable, and you’re fairly confident any sale profit will meet your goals, you’ll likely be on a sound footing to sell.
Another factor is the business cycle for your particular industry. Is your industry on the upswing, with higher valuations, or in a depressed period when valuations are lower? If you are in the upswing period, do you sell now or wait for the business cycle to bust and boom again with the hope that there is higher valuation in the future. According to the US Chamber of Commerce potential buyers, especially in the next three years, will be millennials who are reaching their 40s and ready to strike out independently. The time may be ripe for selling your business.
However, the sale of a business is complex. Consideration must not fall to just personal goals, but also to tax planning, cash flow planning after the sale, and also your employees and how to organize the company for a sale. Then you need to think through how to find not just any buyer but the right buyer. Then how do you ensure you get the true worth of the business and make sound investments with sale proceeds to propel you towards your life goals? It’s a daunting prospect. As with anything in life, preparation and finding the right help is key.
The Steps Towards Selling
The first step is to talk to a qualified and well experienced financial advisor. At Pacific Northwest Advisory (PNWA) we will sit down with you to discuss your needs, wants and desires, barriers to achieving them, and finding what your true income requirements are as you step away. We refer to this as pre-planning where we analyze how different financial moves can help you reach your life goals.
Grounded by the understanding of your goals, we will guide you on what information we need to run a financial analysis that will help us determine your business and asset valuation. Choosing how to value your business requires consideration of many aspects like the type of industry, revenue, the size, growth rate, and financial stability. No two companies are identical and there are various types of valuation methods, such as market value, asset-based, and earnings-based that each have pros and cons. The professionals at PNWA can identify what method or combination of methods to use to assure you will arrive at the fairest price and be in the best position for taxation.
With a value in place we will work with the business owner to run a variety of scenarios that each address the owner's concerns and probabilities. We’ll tailor the type of sale that will provide the most benefit whether selling to someone you know or to another business, selling on the open market, or going public.
The information that we put together will provide the solid backing needed to make the right choices for selling your business. With the pieces in place, we can next start to assemble the team of professionals who will guide you through the sales process. PNWA will continue to be your advocate every step of the way to ensure you can reach your goals.