The Emotion Component of Selling Your Business
Selling your business can be very emotional. A
business seller has often spent their entire life starting, growing, and nurturing their business. This is their “baby” and possibly their identity in the local community. They may have never thought of life without the business. This uncertainty could weigh on the owner making the sale a difficult decision to move forward. Many first time buyers are also emotional since they are entering the world of the unknown. They may have been receiving regular paychecks. They may also have been in a position where they did not wear all of the hats. They may also be putting up their house and personal savings at risk as collateral for the bank loan.
Entering the world of the unknown, buyers and sellers may say and do things during the
buying a business and
selling a business process that is not logical. A
business broker can help separate emotions from facts. This will allow both buyer and seller to take a step back to think logically and make the best decision for themselves, their families, employees, and the company. Selling your business is not easy. A business broker can help you navigate these uncharted waters.
Transitioning the Business after the Sale
When selling your business, you must consider the time line of the process. The current owner was probably the reason the business was successful. A buyer is purchasing this goodwill value that the owner created. If the transition is smooth, then the company's revenues and cash flow will likely stay level or increase. A transition that is not smooth is a recipe for disaster. A buyer may want the business seller to stay on anywhere from 30 days to several years, depending on the type of business and situation. You must take into account the time that it may take to
sell your business. You must add the time to sell to the time needed to prepare the
business for sale and the time needed to find and weed out potential buyers. Preparing a business properly could take a month or two – if it is ready to go. The actual sales process typically takes 6 to 18 months. Depending on how much time you believe that you will need to be involved with transitioning the business to the buyer, you need to add this on the time line as well. Selling a business may be a several year endeavor. If you are considering selling your business, it probably make sense to start the process now so that you can exit on your terms versus being forced to sell the business at a lower price if in the future you don't have the time frame to work with.
It is common for the buyer and seller to meet with key customers and suppliers together, after closing and during the transition period. Employees also feel comfortable seeing the old owner transfer the business to the new owner. If, as a seller, you have negotiated seller financing or an earn-out, it is very important that the buyer obtains your knowledge and skills since future payments to you will hinge on the buyer's success.
It is very common for the seller to offer 30 days training and transition at no additional cost. The time frame and the amount of compensation are negotiable. The more dependent the business is on the existing owner, the longer the training period that will be required. If you know that your situation will not allow you to be able to train an individual, it may make sense to hire a person that will take over your role in advance to be able to assure the transition is smooth. You may also want to start transitioning sales accounts to others within the company away from you. As an owner, you don't want the only face that the customer knows to be yours.
Why Sell Your Company Now?
According to the Exit Planning Institute, an estimated 8 million business owners will exit their business over the next 15 years mainly due to the aging "Baby Boomer" population. However, the amount of qualified buyers is estimated to stay stagnant. The increase in supply without the increase in demand will eventually lead to lower multiples and
business values.
Uncertainties in future tax rates are an additional reason to consider a business sale today. Capital gains taxes are set to increase next year.
Global economic uncertainties are also reasons for business owners to question continued ownership. The recent recession was the worst in most of our lifetimes. Though things are starting to come back, is building back a company something that you really want to go through again?
As mentioned above, the time frame of marketing the business and finding a buyer is lengthy. All parties - business buyer, business seller, and business broker - wish the process was faster but businesses don't sell overnight. It takes time to find the right buyer to take over the business as well as work through contracts, financing, and
due diligence. The time required for training just adds to the time needed.
If You Do Have Time, Start Planning Now
Business owners often wait too long before planning to transition out of their companies. Proper business transition planning can lower their risk and improve asset diversification. Financial and estate planning techniques can be applied to preserve family wealth for future generations when additional time exists. A well executed business transition plan will reduce employee and family uncertainty, and taxes can be lowered or eliminated.
A business owner will be able to choose from the internal business exit options of transferring to family members, selling to shareholders, selling to management, or selling to an Employee Stock Ownership Plan or the external transition options that include selling to a third party, refinancing or recapitalizing, going public, or liquidating the business. An exit plan allows a business owner to choose their most appropriate option and decide the timing of the transition. The cost of not planning often results in the business owner undervaluing the business, being unable to control the timing of the exit, paying too much in taxes, ending up with not enough money to support the desired retirement lifestyle, and leaving headaches to your family members to solve.