Are Baby Boomers Ready to Exit Their Businesses?

Here’s an article I thought you would find interesting. The article, Are Baby Boomers Ready to Exit Their Businesses? was written by Barbara Taylor and was originally published in the New York Times on the 11^th of February of 2011.

After reading the article, I ask that you answer THE questions: Are you a baby boomer ready to exit your business with an Exit Strategy in plan?

-Joan

Are Baby Boomers Ready to Exit Their Businesses?

Many of us who offer financial services linked to retirement have been anticipating the day when the largest wealth transfer in our nation’s history officially begins.  Yet there is no shortage of articles proclaiming that people born from 1946 through 1964 are ill-prepared for retirement.
“They are afflicted with a business disease that is caused by a lack of exit planning,” said Peter Christman, founder of the Exit Planning Institute and author of “The $10 Trillion Opportunity: Designing Successful Exit Strategies for Middle Market Business Owners.” By Mr. Christman’s estimate, as many as 75 percent of all business owners are afflicted with the no-exit-plan disease.
According to a 2008 study conducted by Atlanta-based White Horse Advisors and Vistage International, 96 percent of boomer business owners agreed that having an exit strategy was important – but 87 percent did not have a written plan.

While business owners certainly aren’t the only people guilty of poor planning, boomers anticipating selling a business as they approach retirement in the coming years may be faced with a double whammy: lack of planning and a glut of supply. “This is a landmark moment in our generational development,” said Patrick Ungashick, president of White Horse Advisors, and author of “Dancing in the End Zone: The Business Owner’s Exit Planning Playbook.” According to Mr. Ungashick, 9 million of America’s 15 million business owners were born in or before 1964, resulting in one business owner turning 65 every 57 seconds – and the potential for a tsunami of businesses for sale.
Both Mr. Christman and Mr. Ungashick believe that many of these Boomers have a disproportionate share of their wealth tied up in their businesses. “If these sellers don’t start planning now, they will be sorely disappointed,” Mr. Christman predicted. Both Mr. Christman and Mr. Ungashick recommend that business owners work with tax, legal and exit planning advisers.

Mr. Ungashick encourages business owners to identify areas of transferable value in their businesses. These include management, financial controls, systems, and customer concentration. He noted that not having an exit plan can undermine what he calls legacy aspirations. “Owners have goals and values that they founded the business on,” he explained. “They don’t want to see them kicked to the curb.”
Time will tell whether retiring Baby Boomers exit their businesses with a victory dance, or a shuffle of disappointment. One cause for optimism: Boomers have a tendency to re-shape entire industries. Perhaps it will be their retirement that transforms exit planning from an obscure financial tool to a business best practice.

Note: Barbara Taylor is a New York Times blogger and co-founder of Synergy Business Services in Bentonville, Ark.  This abridged article was originally published in the New York Times on February 11, 2011.

Sunbelt Business Brokers, Greater Bay Area | (408) 436-1900 | www.sunbeltbayarea.net

Does Your Business Have Curb Appeal?

Does Your Business Have Curb Appeal?

Let’s say you’re in the market for buying a house and you go to view one that looks appealing in the ad. How does it look on the inside? The outside? What about the location? What is your general impression?

Like your house, your business projects an image to potential buyers. When they come to see your business for the first time, your “curb appeal” can attract a buyer to your business—or cause them to walk away from it.

Do you need to improve your curb appeal? Here's a three-step plan:

1. Fix Your Leaky Faucets
Perhaps, like many other business owners, you started your business from scratch with one or two employees and now you have 20 people working for you. But do you have the appropriate HR infrastructure in place for that size of a company?  Perhaps you even take pride in your informal management style, but it can prove to be a liability when it comes time to sell.

Make sure your human resources policies are at least as stringent as those of the company you hope will buy your business. Some basics to have in place:

•    A written policy making it clear you forbid any form of harassment or discrimination;
•    A written letter of employment for each staff member;
•    A written description of your bonus system;
•    Written policies for employee expenses, travel and benefits.

2. Assemble Your Binder
When you go to buy a house, it will give you confidence if the owner has the instruction manuals for the appliances, information on where they were purchased, and who to call if one of them breaks down.

Similarly, when a potential buyer looks at your company, he wants to see that you have your business information in order.  Documenting your office procedures, core processes, and other intellectual capital can help you attract more bidders and a higher price for your company, while also lowering the chance of the deal falling apart during diligence. 

If you want to attract a buyer one day, your business needs a binder with instructions for basic functions, such as:

·         Opening up in the morning and closing down at night;

·         Forms and step-by-step instructions for routine tasks;

·         Templates for key documents;

·         Emergency numbers for service providers;

·         Billing procedures for customers.

·         How your company is positioned in the market and your marketing tools.

3. Document Your Intangibles
Intangibles for house buying might include: Is the house near a good school or daycare? What kind of neighborhood is it?  What kind of commute are you looking at to get to work?

Your business also has intangible, often intellectual, assets that a potential buyer needs to be made aware of, such as:

·         Proprietary research you’ve conducted;

·         A formula for acquiring new customers;

·         Criteria you use to evaluate a potential new location;

·         Your unique approach to satisfying a customer.

As with selling a house, your company's curb appeal can go a long way toward closing a deal. 

Curious to see if you have a business you could sell one day? Get your Sellability Score now.

Sunbelt Business Brokers, Greater Bay Area | (408) 436-1900 | www.sunbeltbayarea.net

Q&A - How long will it take to sell my business?

From time to time, I will blog commonly asked questions and answers to help those of you who are considering selling your business. 

Q: How long will it take to sell my business?
A: The time needed for sale depends on a great many factors including the price of your business, the type of business, and your willingness to finance the buyer. In general, it takes 120-240 days or longer to find a buyer for a business. The price and the terms you are offering are important factors. The more reasonably priced and the better the terms offered, the faster the sale.

Here’s some advice –

You want to be updating your financials monthly and sending them to your intermediary. Buyers like to have a current picture of the business. Plan on 60-90 days from the time you have an accepted asset purchase agreement or stock purchase agreement to close escrow. It can take 3-6 months to get to the accepted offer stage or even 8-9 months.

I have a deal I’m working on that has over 30 Non-Disclosures signed and had four offers but we do not have a signed agreement. It has taken 9 months to get to this point.

The seller has become realistic on the price and understands now that there will be a large earn-out-due to 50% of the business being with one account.

Many variables affect the time on the market. Price it right, be available, keep the numbers current and things will happen a lot quicker.

I will gladly discuss with you how your business fits into these general guidelines. Contact us now to schedule a free consultation. Thank you!

-Joan Young

Sunbelt Business Brokers, Greater Bay Area | (408) 436-1900 | www.sunbeltbayarea.net

Keeping the sale of your business CONFIDENTIAL

Tip of the Day

Keeping the sale of a business confidential is probably the number one concern for business owners. Employees may become worried about the security of their employment, and clients may become concerned about quality and service.  Here’s something to ease your concern…

Business Brokers specialize in confidentiality. Every business they sell is a confidential transaction. A broker acts on your behalf allowing you to remain anonymous. It’s important to maintain confidentiality.

So, When should I tell my employees about the sale, you may ask? 

Although it sounds cruel, our considerable experience has proven that it is best to tell your employees about the sale after the sale is complete. Of course, if there is an employee whose expertise will be needed after the sale, you should introduce the buyer to this employee shortly before closing.

We have found that once employees find out that the business is for sale, they often just assume that their position will be replaced with the new owner’s personnel. This is far from the truth, however. Current employees are a wealth of knowledge! After the transaction has occurred and the seller is no longer there, employees become a real asset to the business. It typically works best if employees are introduced to the new owner right after closing the sale. This enables the new owner to tell about his background and to take time to assure the employees of their value and that no one is going anywhere– all without distressing anyone.

If you’d like to discuss how the confidentiality of the sale of your business will be handled, contact me at the number below. Thank you very much.

-Joan Young

Sunbelt Business Brokers, Greater Bay Area | (408) 436-1900 | www.sunbeltbayarea.net

Planning to Sell? How to answer THE most important question

Many business owners believe the act of selling their business is similar to passing the baton in a 400 meter relay: once you’re finished running, you get to relax.  In reality, buyers will insist that you stay on for a transition period – anywhere from six months to five years – during which time you continue to work in your business to help the buyer capitalize on the investment they’re making.

THE Question

At some point in the process of selling your business, a prospective buyer will ask you – oftentimes casually – “Why do you want to sell your business?” These eight seemingly innocuous words have derailed more deals than any others.

Buyers ask THE question to evaluate how likely and willing you are to stay on or if you already have one foot out the door.

Obviously you don’t want to lie, but there is a right and wrong way to answer THE question. Answers like “I want to slow down a bit” or “I want to travel” or “we’ve got a baby on the way and I want to spend more time at home” communicate to a potential buyer that you plan on winding down when they take over. However, what they want to hear is your intention to help them realize the potential locked inside your business.

Here are some suggested responses based on your age.

If you’re under 40, you clearly aren’t ready to “retire” so you need to communicate that you see an upside in merging your business with theirs:

“In order for us to get to the next level, we need to find a partner with more <insert sales people, distribution, geographic reach, capital or whatever the partner brings to the table>.”

If you’re between 40-55 years old, most people will understand the need to shore up your personal balance sheet:

“I’ve reached a time in my life where I want to create some liquidity from the value I’ve created so far, and at the same time I want to find a partner who can help us get to the next level.”

If you’re over 55, you can start to talk about retirement, but you want to make sure you communicate that you still have lots of energy and passion for your business.

“I’m at a stage where I need to start thinking about retirement. It’s a long way off yet, but I want to be proactive.”

Rehearse your answer to THE question so it becomes a natural response when you are inevitably asked THE question by a potential acquirer. 

Contact us now to schedule a free consultation. I will gladly go over your personal situation with you.

Thank you! 

Sunbelt Business Brokers, Greater Bay Area |  (408) 436-1900 | www.sunbeltbayarea.net | info@sunbeltbayarea.net

Have you thought of your Exit Strategy?

If you’re a business owner, you’ve most likely asked yourself this question, HOW DO I GET OUT OF THIS BUSINESS? The buzz phrase is “Exit Strategy” – and you have one—whether or not you have a plan in place. 

Your financial planner says you should have an exit strategy; your lawyer says you should have an exit strategy; your spouse says you should have an exit strategy. They may not say it in just that way. The financial planner says you need to diversity your assets; your lawyer says you need to spread your risks; and your spouse asks, “When are we going to spend more time together?”

In planning your exit strategy, you will have to look at many areas of the business and your personal life.

Estate planning Retirement plans Financial requirements Mergers / acquisitions / sale Heirs

I understand this can be overwhelming. Here is where I come into place. For a personal consultation regarding your Exit Strategy please call us at (408) 436-1900 or visit our web page where Exit Strategy Webinars are taped to educate potential sellers.

I look forward to hearing from you! 

Best of luck,
Joan Young

 Joan Young         jyoung@sunbeltbayarea.net  (408) 436-1900    www.sunbeltbayarea.net

Prevention is better than cure

To grow a valuable business – one you can sell – you need to set up your company so that it is no longer reliant on you. Of course, this can be easier said than done, especially when, like a PR consultant or plumber, what you are selling is your expertise.

To scale up a knowledge-based business, you first have to figure out how to impart your knowledge to your employees, so that they can deliver the goods. However it can be difficult to condense years of school and on-the-job learning into a few weeks of employee training. The more specialized your knowledge, the harder it is to hand off work to juniors.

The key to scaling up a service business can often be found by offering the service that prevents customers from having to call you in the first place. You have to shift from selling the cure to selling the prevention.Fixing what is broken is typically a hard task to teach; however, preventing things from breaking in the first place can be easier to train others to do.For example, it takes years for a dentist to acquire the education and experience to successfully complete a root canal, but it’s relatively easy to train a hygienist to perform a regularly scheduled cleaning.

It’s almost effortless for a real estate manager to hire someone to clean the eaves trough once a month, but repairing the flooded basement caused by the clogged gutters can be quite complex. For a master car mechanic, overhauling an engine that has seized up takes years of training, but preventing the problem by regularly changing a customer’s oil is something a high school student can be taught to do.

For an IT services company, restoring a customer’s network after a virus has invaded often takes the know-how of the boss, but preventing the virus by installing and monitoring the latest software patches is something a junior can easily be trained to do.

When you’re selling your expertise, it can be tough to hire a team to do the work for you. As ironic as it sounds, sometimes the key to getting out of doing the work is to offer a preventive service, which not only maintains your business income, but also eliminates the need for someone to call you in the first place.

Visit our website for more information. On there, you will find a sea of information on Exit Strategies, business valuations and more. If your curious to know what the value of your business is, contact me at jyoung@sunbeltbayarea.net or give us a call at (408) 436-1900.

10 Questions to Ask Before Buying a Business

 10 Questions to Ask Before Buying a Business

Many experts are predicting that a huge wave of businesses will become available over the next decade or so as baby boomers look to sell. As the economy continues its climb into a full-blown recovery, it just might be the perfect time for you to fulfill that lifelong dream of buying a business. Before you take the plunge, however, you should take the time to ask yourself a series of questions that will help make sure you're prepared for the rigors of business ownership. Certainly the team of advisers you assemble to make such a deal—such as business brokers, attorneys, and accountants—can help you in determining the value of a business and what you should pay for it. But there are additional questions you need to ask yourself, and the seller, to find out if the business you've targeted is everything it's cracked up to be. With that, here is a list of 10 questions that you should get answers to before buying the business of your dreams.

1. Is buying a business the best decision for you right now?
Perhaps the most important questions to start asking involve whether buying a business is a good fit for you, says Keith Emmer, principal at Startegix in New York City. "If you're just bored or looking to try something, what happens when you have to do the tedious tasks that every entrepreneur must do?" asks Emmer. If that's the case, you might want to consider a hobby instead.

If, on the other hand, you see real opportunity and have always tended to see the world a little differently than others in your corporate job, owning a business may be right for you. "At the same, you should ask yourself if right now is the best time to make the commitment to buy if say, you're almost vested in your retirement plan," says George Krueger, president of Bigg Success, a business education and consulting firm in Champaign, Illinois. "It's probably a small sacrifice to get the full benefit of your employer's contributions," he says. "You can use the time to get prepared to buy a business."

2. Will your spouse support you?
Owning a business will affect your relationship with your spouse, in one way or another, says Krueger, since both of you will need to make the emotional and time investments that come from riding the entrepreneurial roller coaster. "So your spouse has to be prepared mentally and emotionally as well," he says. "If not, you may find that your biggest challenge comes from home rather than your business." You need the physical capacity to work long days, especially in the early days.

3. Who runs the business when the owners go on vacation?
One interesting question to get an answer to involves asking when was the last time the sellers went on vacation, how long were they gone, and what kinds of problems happened when they were away, says Kent Boehm, a business coach in Alberta, Canada. That helps determine how tied the business owner is to the day-to-day operation of the business. "The more often the owner goes on vacation the better quality of life they have," says Boehm. "The problems that occur while on vacation are sometimes an indicator of how much babysitting the owner has to do."

4. Do the numbers add up?
This one seems obvious, but a lot of new entrepreneurs don't really think about what exactly their return should be, says Krueger. "If you plan to be an absentee-owner, will the business provide a reasonable return on your investment, given the risk?" he says. "On the other hand, if you will be an active owner, will it provide the return on your investment and compensate you adequately for the time you're investing?" Kruger also suggests subjecting the projections you're using to what he calls "stress testing," such as finding out what might happen to cash flow if sales are below your expectations or costs run above your projections? "Bankers often see if you'll be able to pay them back if profits are off by 25 percent," he says. "You should run similar scenarios."

5. Are there any other skeletons to worry about?
You'll also need to do your homework when it comes to finding out everything beyond the numbers that might affect your new business, says Chantay Bridges, a senior real estate specialist with Clear Choice Realty & Associates in Los Angeles. He suggests finding out answers to the following questions.

Are there any easements, exclusive rights, or right of ways that impact the business?

Has the business ever been a crime scene or has it been vandalized?

Has the seller run into any trouble with the state, government, or IRS?

What is the business zoned for? Is the area hazardous?

6. What do the customers have to say?
A step that many business buyers fail to take is talking to current customers in the business, and not necessarily the ones that the seller handpicks for you. "Unless you know who buys from you and why they buy from you, you will be flying blind," says John Torrens, a veteran entrepreneur who also teaches entrepreneurship at Syracuse University. "This is good to know before you engage in a letter of intent and is especially important during due diligence. What you find out can help you if you take over the controls."

7. How does the business make its phone ring?
Obviously, any business needs to have a growing customer base to be successful. So it might be worth asking the seller about what kinds of things they have done to market their business and to generate inquires from new prospects, says Boehm, at least so that you know what you might need to do more of once you take over. "Ask them if they know which marketing efforts create the most leads," he says. "What you want to try and find out is what marketing they are doing, if any, and how effective it is."

8. Why is the seller really getting out?
The seller knows his or her business better than you do, says Krueger. That's why you should make the time to ask him or her about why they are selling. The rub, however, is that you'll usually hear reasons like "retirement," "health reasons," or "other opportunities." Your challenge, Krueger says, is to find the real reason. "You may never find out, but you should certainly try," he says. "Build a relationship with the seller and be thorough in your due diligence."

9. Will the seller keep some skin in the game?
Working with a bank or lender is an important step in buying your new business. But, with credit tight these days, it's not uncommon for sellers to step up and finance at least part of the sale, even though they would all prefer an all-cash deal. If you can get your seller to put their money on the line, it may serve as a signal of the seller's confidence in the future of the business, says Krueger. "Remember that they know more about their business than you do," he says. "If they're not willing to let any money ride on the business, should you?"

10. What is your exit strategy?
This is an important question to ask even as you make the decision about whether to buy a business or not, says Alex Corrigan, who heads up the M&A practice at Delap, a 78-year-old accounting firm in Portland, Oregon. "This should be considered right from the start because," Corrigan asks, "what if you have to sell the business or get out sooner than you thought?" Along the same lines, he suggests that you should also have a buy-sell agreement in place if you happen to have any partners involved in the business.

Maintain Your Mental Well-Being

This week the US government revised the food pyramid — that diagram that's been with us for decades that is supposed to remind people how to eat well. The model needed a revision, and the new version, called Choose My Plate, is a big improvement.

However, there's a different epidemic happening out there that's getting less attention, perhaps because it is less obvious than the epidemic of obesity we're experiencing. It seems we may be entering an era of an epidemic of overwhelm. A time when too many people's mental well-being is being stretched through multi-tasking, fragmented attention and information overload.

The trouble is, we are short on simple, clear information about good mental habits. Few people know about what it takes to have optimum mental health, and the implications of being out of balance. It is not taught in schools, or discussed in business. The issue just isn't on the table. Businesses schedule time as if the brain had unlimited resources, as if we could focus well all day long. Every week I talk to an organization who says that their biggest problem is simply the overwhelm their people are feeling. Without good information about the mind and brain, we may be stretching ourselves in ways that may have bigger implications than poor eating habits.

This platter has seven essential mental activities necessary for optimum mental health in daily life. These seven daily activities make up the full set of 'mental nutrition' that your brain needs to function at it's best. By engaging regularly in each of these servings, you enable your brain to coordinate and balance its activities, which strengthens your brain's internal connections and your connections with other people.

The seven essential mental activities are:

Focus Time. When we closely focus on tasks in a goal-oriented way, taking on challenges that make deep connections in the brain.

Play Time. When we allow ourselves to be spontaneous or creative, playfully enjoying novel experiences, which helps make new connections in the brain.

Connecting Time. When we connect with other people, ideally in person, richly activating the brain's social circuitry.

Physical Time. When we move our bodies, aerobically if possible, which strengthens the brain in many ways.

Time In. When we quietly reflect internally, focusing on sensations, images, feelings and thoughts, helping to better integrate the brain.

Down Time. When we are non-focused, without any specific goal, and let our mind wander or simply relax, which helps our brain recharge.

Sleep Time. When we give the brain the rest it needs to consolidate learning and recover from the experiences of the day.

We're not suggesting a specific recipe for a healthy mind, as each individual is different, and our needs change over time too. And we're not suggesting that business suddenly changes everything and reorganized all of work. The point is to become aware of the full spectrum of essential mental activities, and just like with essential nutrients, make sure that at least every few days we are nudging the right ingredients into our mental diet.

Just like you wouldn't eat only pizza every day for days on end, we shouldn't just live on focus time and little sleep. Mental wellness is all about giving your brain lots of opportunities to develop in different ways. In organizations, from a practical perspective, this means allowing people to work from home more, to be more flexible, to give people more autonomy.

In short, it is important to eat well, and we applaud the new healthy eating plate. However as a society we are sorely lacking in good information about what it takes to have a healthy mind. We hope that the healthy mind platter creates an appetite for increasing awareness of what we put into our minds too.

Protecting your company’s value during a sale

If you have ever promised your child a treat in return for good behavior, you know all about negotiating leverage.

When selling an attractive business, you also have leverage—up to the point that you sign a letter of intent (LOI), which almost always includes a “no shop” clause, forcing you to terminate discussions with other potential buyers while your new found “fiancé” does due diligence before handing over the check.

After you sign the LOI, the balance of power in the negotiation swings heavily in favor of the buyers, who can then take their time investigating your company. At this point, there is little you can do.

Yet, with each passing day, you will likely become more psychologically committed to selling your business. Savvy buyers know this and often drag out diligence for months, ultimately manufacturing things to justify lowering their offer price or demanding better terms.

With your leverage diminished and other suitors sidelined, you’re then left with the unattractive options of either accepting the inferior terms or walking away.

We recommend four things you can do prior to signing an LOI to minimize the chances of your deal dragging on for months and becoming watered down:

1. Make sure your customer contracts have “successor” clauses

Try to have customers sign long-term, standardized contracts that include a clause stating that the obligations of the contracts survive any change in ownership of your company. Have your lawyer wordsmith the details.

2. Nurture and prepare a group of 10–15 “reference-able” customers

Acquirers will want to ask your customers why they do business with you and not your competitors. Cultivate a group of customers to act as references before you sign the LOI.

3. Ensure your management team is all on the same page

During due diligence, acquirers will want to run “isolation” interviews, during which they speak with your managers without you in the room. They are trying to understand if your company is pulling in the same direction and to identify any dissension or incoherence among your ranks.

4. Make sure you have audited financials

An acquirer will have more confidence in your numbers and will perceive less risk if your books are audited by a recognized accounting firm.

Tomorrow we’ll look at the top three things you can do to ensure your deal does not become diluted or fall apart at the altar.

Should You Develop a Business Exit Strategy?

Whenever you create something that's interesting and useful, you create something that's worth selling. And when you're thinking of selling something that's as vital to you as your business, it's best to have a well-developed plan firmly in place.

In business terminology, an ending for a business owner is called an "exit," while the planning of a defined ending is called an "exit strategy." Having an exit strategy tells others who have the occasion to view your business that you're in control of your business, that you're aware and goal focused, and that you have a plan for an organized and profitable ending.

Business owners who don't plan for ownership transition are often faced with the inability to receive enough money in an ownership change to fund a comfortable retirement. This doesn't happen because such owners failed to create value in their businesses; rather, it's because they failed to do the planning that would have allowed them to keep that value.

If you are just starting your business and intend to seek angel investors or venture capitalists, those investors will require that you have a viable exit strategy in place before they'll award you a dime. Business owners who are approaching retirement may want to sell their business to an outsider, a key employee, or to a co-shareholder or partner. Alternatively, they may want to transfer their interest intact to children or other family members. How can all of this be accomplished? You got it — with an exit strategy.

If you've been in business for years and are just now thinking of developing an exit strategy, don't despair. But do start your exit strategy today, keeping in mind that defining it is a process that requires careful thought. Rather than being something you'll finish in 10 minutes, this plan takes time, both now and in the future. Continue to revisit your exit strategy as your business grows.

All strategic exit plans should identify the following key topics:

• Current valuation of your business
• The factors that drive the value of your business
• Methods to increase your business value
• The potential future value of your business
• Your options for ownership change
• Likely tax implications of ownership change
• Tax-saving methods specific to your business
• Your likely proceeds from strategic ownership change

Set Up a Strategy

Let's say you accomplish the above imperatives and realize the current valuation of your business isn't what you thought it was, perhaps because you were off the mark when you originally determined the factors that drive your business's value. These two factors play into a third: your likely proceeds from an ownership change.

In cases like these, you'll need to amend your exit strategy or potential buyers won't be interested. Maybe expenses need to be reduced, better buying practices put into place, tighter controls placed on accounts receivable, improved service or focused sales and marketing initiatives need to be considered.

You get the picture. With a proper business valuation and some exit strategy planning, you can provide for a smooth transition and make the business more valuable and desirable. Alternatively, you can ensure that it will be turned over to family members on the most favorable terms to you, with the lowest tax consequences legally possible.

With your exit strategy in hand, work each day to make the decisions and moves that will position your business to reach your exit goal.

Reasons to Sell Your Business Before You're Ready to Retire

You don't have to hold onto your business until your working days are done. Here are some reasons why "retirement" and "exit planning" shouldn't be synonymous.

Have you ever noticed how the terms “retirement” and “exit planning” for business owners are often used interchangeably?

Sometimes it seems as though the only socially acceptable way to exit a privately held business is to hang on until you’re well past your prime, eventually giving the reins to your offspring so you can play golf for a few years before retiring into a home to wait to die. Your children, however much you love them, could be the last people in the world that should run your company. Spending your retirement watching your life's work diminish before your eyes –

I’m sure you have your own reasons for building a business you could sell, and while retirement is a legitimate reason, it’s not the only one. Here are my favorite reasons—inspired by real people in their 30s, 40s, 50s and 60s—for selling a business before you want to retire. You may want to:

• Become an angel investor;
• Capitalize on an unsolicited offer for your business;
• Write a serious check to a charity;
• Get rid of your mortgage;
• Start a bigger, faster and more profitable business;
• Live debt free;
• Take a year off to coach your kid’s baseball team;
• Buy a beach house;
• Get out of a toxic partnership;
• Experience what it is like to work for a big company

When I ask business owners who have sold their company to share the one thing they wish they had known before doing so, many are quick to say they wish they had known to do it sooner.

Don’t wait too long to enjoy the other jobs of life. Allow a good 20 years to do the things you have always wanted to do.

Should I Hire A Business Advisor to Sell My Business?

As a business broker, our first contact with business owners is often when they decide that they want to sell their business. Sometimes this is great, but sometimes it doesn’t allow the business owner to meet their expectations.

For business owners who are not familiar with business brokers, we are often seen - not as professionals who help them navigate a long and challenging road - but as a ‘salesperson’ just looking for the listing. This makes it difficult for some business owners to understand both the value of having an opinion of value, and in appreciating that the right time to get this (for the first time) may well be years before they need/want to sell.

At Sunbelt Business Brokers, we charge our clients to prepare a Most Probable Selling Price (MPSP) Report which is a broker’s opinion of value. Once a client reviews the MPSP they have a clear understanding of the range of value of their business as well as understanding the areas that contribute to the value of the company. This will also identify areas to change or improve to have your business ready to sell.

Imagine that you have owned your business for many years. It has provided you and your family with a lifestyle that you have enjoyed, but you are getting ready to retire. Remember, from the cash flow of the business buyers have to be able to support themselves, pay their debt servicing costs and expect to get a return on their invested capital. You, on the other hand, not only want to ‘get a great price’, but also to keep as much of it as possible. If taxes eat your selling price, then the great price wasn’t so great.

In many cases you need to prepare yourself and your business for this transition.

• Your Sunbelt MPSP provides an opinion of value AND reviews your operations for elements that may need to be changed prior to sale;

• Your accountant, with their knowledge of your business (and a copy of the MPSP!) may assist you with tax planning and recommend deal structures;

• Your financial advisor, may assist you with tax planning and disposition options;

• Your lawyer may assist you with deal structure, sale documentation, and sometimes help create tax- efficient entities.

Shifting your company from ‘operating to run’ to ‘operating to sell’ can take one or two, or more years to prepare for as you whip that business into a condition that can maximize both the selling price and your ability to retain those proceeds. Having a Most Probable Selling Price Report done - and in turn - updated as you move closer to your proposed exit time, can be a great tool to allow you and your advisors to prepare for this significant transition. Not allowing yourself the time or avoiding an ‘expense’ can both come back to haunt you. The snapshot that a Most Probable Selling Price Report provides can be one of the best investments you will ever make. Ask your local Sunbelt Business Broker About preparing your business for sale.

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Plan for succession and a possible sale.

Of family owned companies, 30% will experience a change of ownership due to retirement within the next five years. This is according to the Research by the University of North Carolina’s Ashville’s Family Business Forum. More than half of the family-owned businesses' CEOs nearing retirement age 61 and older haven’t chosen their successor.

More retirees are finding that their children really do not have any interest in taking over the family business. This means you will need more time than you think to prepare your company for sale to an outside party.

You may find that an employee or employees may want to buy your firm. They typically will need bank financing or a private-equity partnership, and that will entail having good financial statements to show to lenders or investors.

Of course an unexpected illness or death can disrupt even the best of plans, so plan on the unexpected. Control what you can. Have a buy/sell agreement ready which will outline the terms under which a potential successor can value and buy your business.

Make sure you have talked with your tax planner to see how estate taxes might affect you as well. They are typically based on the fair market value of the company upon the date of the owner's death. Hopefully you are seeing the importance of using financial and legal experts knowledgeable about retirement and estate planning.