Financial Planning What to Do Before You Sell Your Business
A milestone for any entrepreneur, selling a business is a very personal, weighty decision. Whether you've built a company from the ground up or acquired one and expanded it, the decision to sell is filled with both excitement and apprehension. To successfully navigate this complex process , it is important to discuss the implications to and the potential effect on your overall financial plan. Careful preparation and a thorough understanding of the various steps involved are crucial. Let’s discuss some important considerations to weigh before you sell your business.
Investment Banking Perspectives
One of the first and most important steps in selling your business is proper preparation. This preparation involves organizing the financials and addressing any operational, legal, or structural issues that may impact the sale. At ClearPlan Wealth Management, we tap into our vast professional network, including tax consultants and investment banking resources, to collaborate with our clients before they begin this journey.
Experienced investment bankers help to identify and rectify any financial discrepancies, optimize business operations, and help to ensure all legal documentation is in place. Implementing this meticulous preparation helps prepare and present your business in a positive light a well-managed, profitable entity – all essential for attracting serious, qualified buyers.
An accurate valuation of your business is another critical aspect of the sale process. Overestimating or underestimating the worth of your business can lead to missed opportunities or significant financial losses. Investment bankers assist by conducting a comprehensive valuation based on real numbers and market conditions. Valuation involves analyzing the company's financial performance, market position, growth potential, and industry trends. A realistic valuation helps set an appropriate asking price, making the business attractive to potential buyers while helping ensure you receive fair compensation for your success built on years of hard work.
Finding the Right Buyer for You & Your Business
Frequently, finding the right buyer is the most challenging element of selling a business. This approach is far different than simply finding “a buyer”. The “ideal buyer” not only meets your financial expectations but also aligns with your company's values, culture, and vision. Our investment banking specialists leverage their extensive networks and market expertise to identify and approach potential buyers deemed a good match for your business. Such a targeted approach increases the likelihood of finding a buyer who appreciates the value of your business and is prepared to meet your terms of sale.
Many business sellers make the mistake of jumping quickly into a sale opportunity without thorough planning and consideration, leading to regrets and missed opportunities. A hasty sale may result in accepting a lower price or unfavorable terms due to a lack of preparation or urgency. To avoid such pitfalls, it's crucial to take the time to understand the complexities involved in selling your business, including financial and legal aspects, but also the emotional and operational shifts that come with handing over the company keys to new ownership.
Do Your Own Due Diligence First
Imagine that you were buying a business. No doubt you would enlist valued resources to perform due diligence. We recommend taking this same approach with your own business, before beginning the search for a buyer.
Selling a business is not simply the act of finding a buyer and agreeing on terms of sale, the process involves presenting your business in the best possible light, negotiating terms to meet your goals, and ensuring a smooth transition for employees, customers, and operations. This whole-encompassing approach increases the chances of a successful and satisfying sale.
Understand what your business looks like financially - on paper. What does your business look like during a site visit? Are your sales and marketing initiatives in sustain mode or growth mode? What is the overall “big value proposition”? Are there processes and operations in place that are efficient and replicable?
Before initiating the sale process, it is advisable to have an internal audit conducted of your business. The audit should include financial statements, tax returns, contracts, intellectual property, and other documentation potential buyers might scrutinize. Ensuring all pertinent documents are accurate and up to date helps facilitate a smoother due diligence process and builds credibility with potential buyers.
Priorities & Timing
When it comes to negotiations, it's crucial to remain flexible yet firm on your priorities. At ClearPlan, we serve as a sounding board for clients preparing for the business sale process.
Understanding what aspects of the sale are non-negotiable and where you have room to compromise helps in effectively navigating the negotiation process . Whether weighing the sale price, payment terms, or the future involvement of current management, having a clear idea of your priorities will help guide in making informed decisions.
Another important aspect to consider is the timing of the sale. Market conditions, economic climate, and industry trends can significantly influence the outcome of your sale. Selling during a market downturn or when your industry is facing challenges may not yield the best results. Conversely, selling amid a period of growth and profitability may attract more interest and higher offers. Keeping an eye on these external factors and timing your sale strategically can make a substantial difference in the outcome.
In addition to financial preparation, another important consideration is the impact of the sale and change of ownership on employees and customers. Transparency and open communication with your team helps ease the transition and maintain morale. Assuring your customers the quality of service or products will remain unchanged helps to retain their loyalty during the all-important transition period.
Assemble the Right Team
Engaging a team of advisors, including financial, legal and tax professionals, helps provide invaluable support throughout the sale process. At ClearPlan Wealth Management, we provide an integrated approach by listening, offering guidance, and engaging valued resources to consider every aspect of your life and your desired legacy. By facilitating an all-encompassing approach to your financial planning, managing partner Troy Brewer notes, “We have an extensive network of resources including investment bankers, estate planners, accountants, and business leaders to support the financial goals of our clients.”
These experienced professionals offer strategic advice on structuring the deal, minimizing tax liabilities, and helping to ensure satisfaction of legal requirements. Professional expertise helps you avoid common pitfalls and ensure that both your business sale and transition are smooth and efficient.
The Rewards Can Be Worth the Work
If you have done your due diligence and with trusted advisors by your side, you may find the experience to be personally and financially rewarding. Once the sale has concluded, take the time to reflect on the journey and celebrate your achievements and successes. Selling a business is a significant accomplishment and should be celebrated. Whether planning to retire, starting a new venture, or pursuing other interests, closing this chapter with a sense of satisfaction will set a positive tone for your future endeavors. We would love to guide you through the process – reach out today and schedule a consultation!
About the Author:
Troy Brewer has a talent for connecting successful people while serving as a respected mentor on the path to prosperity. By facilitating an all-encompassing approach to wealth management, Troy utilizes his extensive network of resources including investment bankers, estate planners, accountants, and business leaders to develop creative financial solutions for his clients. By fostering meaningful relationships, orchestrating financial strategies, and serving as a trusted confidant, Troy helps his clients achieve their desired life and legacy.
Troy has spent more than 25 years in the financial services industry, focusing on maintaining tight multigenerational relationships through a process-driven approach. As a Chartered Retirement Plans Specialist® and member of the Baltimore Estate Planning Council, Troy specializes in low-cost investments, complex / multigenerational wealth planning and tax efficiency. His clients include business owners, corporate executives, and affluent families. Learn more about Troy or schedule a consultation.
Any opinions are those of Troy Brewer and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. Raymond James and its advisors do not offer tax or legal services. You should discuss any tax or legal matters with the appropriate professional.
