By Christine Moriarty, CFP
Exiting from your business can be as all-encompassing as starting it. Business ownership is complicated, challenging and multifaceted. In a typical day, you manage employees, stay aware of business trends and keep on top of your financials. Preparing to sell your business adds another layer of complexity. But where do you start? How do you prepare? How do you know when the time is right to sell?
Some say there is never a good time to start a business. A business owner may also say there never is a good time to sell; however, there are some key questions to ask and steps you can take to prepare yourself, your business and your team for reaching your goals and ensuring a smooth transition. The situation demands you look at the financial, technical and personal sides of the business. You may find it helpful to think of the process as multidimensional with four distinct layers.
1. Sustaining Your Business
The first step is to take a critical look at your internal team. Could someone manage this business if you were not there? A buyer wants to make a smooth transition, and knowing she is “buying” a strong management team may be the difference between a potential buyer and a final sale.
If you have a strong team, document why and how upper management works effectively. If your team could be stronger, consider the following: Do you need a COO to relieve you of some of your duties? Start the process of hiring one. Do you need team building exercises or to work with a consultant so you have a more cohesive group? Discover who can help and make the investment in your internal team. Keeping your management team strong makes sense for you today and when the time comes to sell.
The second step is to review your business model. Determine when value could potentially be highest and the most interested buyers readily attracted, as that may present the best time to sell. Consider whether now is the best time or if it would be better to wait until after you roll out the next version of your product. If there is a future risk that you do not feel prepared to bear, the time could be now.
2. Building Your Business Exit Strategy and External Team
Although many business owners wish for prospective buyers to knock on the door with an offer, buyers typically must be sought out and evaluated. Some financially savvy business owners think if they handle the deal themselves, they will save money. The truth is, the owner in a private enterprise is an expert in her business, not in sales of businesses. Her focus should be on being at the helm of the ship, not seeking buyers.
At this stage, consider the following: Do you have the time and the expertise? It is common to hire consultants for technology installs or HR issues. This is the time to hire an expert who specializes in advising owners of privately held companies on transition. Relying on someone with the network and experience to oversee the sales process can help you get the best value from this liquidity event.
A strong professional will help you consider the selling decision objectively from the industry, market and a buyer’s viewpoint. There are two types of advisors at this point. One will help you find the buyer and navigate the process. The other will be on your team to negotiate the deal. Your current professional team may not have handled such a large business dealing. Now is the time to find the right team – lawyers, accountants, CERTIFIED FINANCIAL PLANNERS™ and investment advisors – whose values align with yours. Their experience can streamline the process and help your decision-making.
For example, the Brown Brothers Harriman Corporate Advisory & Banking group offers corporate finance advice and capital to substantial, privately held businesses. That assistance comes in many forms – from financing the organic growth of a business or an acquisition to providing advice on capital structure or navigating the sale of a business. The team is not motivated to seek short-term transaction outcomes, only to provide independent and thoughtful advice to clients over time. This allows them to act as an objective advisor and approach every client situation without bias for any particular outcome.
3. Knowing Your Priorities and Values
Do not discount the emotional side of selling your business. For one business owner, the right buyer may be the organization with the biggest pocketbook. For another, it may be the group that understands the business and will sustain it. And yet for another, it could be the buyer who will treat her employees like family. Many owners desire a combination of all these. You should understand your priorities and values before you are faced with the decision of choosing a buyer. For example, is your end game to make money and move on, or do you have other intentions? Begin with the key points of what you want, and then align that with your values. Ask yourself, “Why am I selling?” and then follow that with, “Why now?” and, “What am I retiring to?” There are multiple layers to the story. On top of money and lifestyle decisions that must be considered post-sale, there is the intensity of running a business while trying to sell it.