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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How Do Sellers Respond to Banks Tightening Down on Lending?

As banks are being more stringent with their lending criteria, Sellers are being asked to carry a larger note back on the business. This is really a good thing for the Seller if they have a good, qualified buyer. Sellers not only get 7% interest on their note, which is hard to come by these days, and they do not have to pay taxes on the funds until they receive them. This spreads out their tax consequences over the three to five years of the loan.

If the buyer is using the Small Business Administration (SBA) to fund the majority of the loan, the SBA will require that the Seller receive interest only for the five-year period with a balloon after 60 months. The SBA is quite concerned about the Buyer's cash flow and is making sure they do well in the business.