Seven things you must do before selling your company
Editor’s note: This is the first of a five-part series on preparing yourself and your company for sale to maximize your outcome.
You have worked most of your life at a business that has been a key part of your life and now it is time to sell your company and retire. As an owner of a successful business, you are probably thinking that managing your exit will come naturally. This cannot be further from reality. Running and growing your business is much different than selling your company for a final exit. There is a need to look at your business and your life differently as you begin preparations to exit.
Over the next five articles, we will explore the seven areas you need to do before putting your company on the market. These areas will help you prepare yourself and your company to deal with the sales process, maximize the value of your company, make your company more attractive at the time of sale and help you develop your personal plan after the sale.
1.) Are you ready?
Many business owners I meet find themselves waking up one morning with owner’s fatigue – sick of the business and ready to sell, with no planning or preparation. This makes the exit difficult at best with many of these business owners selling for much less than they want (or need) or getting trapped in their business with no exit horizon in sight. Start your planning as soon as possible – five years prior to putting your company on the market is not too soon.
What will you do?
Ask yourself “What will I do with my time after selling my company?” If you are like many business owners the response revolves around some leisure activity that you do not get enough time for today. It might be golf, travel or some outdoor activity…if this is your answer you need to be prepared for some boring times. Most independent business owners have too much drive to totally settle down after selling their business.
After 90 to 120 days of leisure, they are ready to get back to something more like work, something with purpose. It is important to understand this and develop a personal plan for your next phase of life. This may include starting another business in an area that appeals to you and looks fun, it could be getting on a company board of directors, or it could even include getting involved with a non-profit organization. Whatever turns you on; you need to start the planning development of these areas while you are still involved with your current business. Diversifying your self-image while still in your business helps you during the sales process and also allows you prepare for the next phase of your life.
Many business owners do not work with financial planner, but instead feel their business is going to fund retirement. The first step in getting yourself ready is to work with a financial planner that can help you assess what your financial needs will be to support whatever lifestyle you desire after selling your business. Your financial plan will provide you with a target of what you will need when selling your company. This is not the value of your business, but it will give you an idea of the work needed to build your company.
The financial plan is an important part of your planning efforts and should not be skipped. A good financial planner can help you develop a plan that can include philanthropic endeavors, gifts to family members or financing your next business venture. Whatever the direction, it gives you a direction and focus. You have been financing a lifestyle with your business and after selling, you will need to fund your lifestyle out of the proceeds from your business.
Your Business’s Value
Your business is not worth what you think it is. Most business owners believe their business is worth two times the real market value. Many times it is because they lack the knowledge of valuation techniques and in almost all cases it includes some level of emotional value attached to the business. You need to be prepared for offers to come in significantly lower than your expectations, if you have done nothing to prepare your company for sale. Start this process early with a professional that can give you an idea of the market value of your company and work on those areas that will have the biggest impact on increasing the value.
Coming up: Increasing the value of your business by managing the value drivers in your company, improving the value detractors, and getting your house in order.