Starting a business can be just as daunting and nerve-wracking as starting a family. A tremendous level of preparation, care, and dedication is required for lasting success in both contexts. Every business that is built from the ground up faces challenges, not unlike nurturing and raising a child. This is why the question of whether or not to sell the business can be such a daunting one for business owners.
“Business ownership is synonymous with identity for so many business owners,” WealthCo’s Senior Planner, Ryan Mackiewich, points out. “For many business owners, there is no separation between themselves and the business. It can be very difficult to consider selling as they can’t see themselves not connected to the business in some way and have a hard time letting it go.”
However, sometimes the signs are there that it might be time to sell, including:
- A willingness and readiness on the part of key employees/next generation to step up and take over;
- An inability or lack of desire to stay on top of new technologies, processes, and methodologies;
- When someone else sees more value in the business then you do; and
- Being disengaged - if an owner no longer has the passion for the business they started, then it may be time to consider selling.
There is a lot to consider before taking that step though.
Is there an optimal time to sell your business?
“The best time to sell any business is when it is worth the most to someone else,” Mackiewich advises. “Obviously, this can be very hard to evaluate and even more difficult to time. So instead of trying to time the sale perfectly make sure to get yourself ready and your business ready so that when the best suitor comes along you are ready to take action and cash in on the value of your life’s work.”
In order to optimize the success of selling your business, some basic steps can help set the stage for a successful sale:
1. Get your paperwork in order - financial statements, tax filings, and legal compliance all need to be up to date before you move ahead with any potential sale.
2. Evaluate and document the value of your business. This could include an audit of financial statements or a valuation report together with other documents that reflect potential strengths and weaknesses.
3. Form a team to support the process – this team should include advisers such as your accountant, potentially an attorney, and a business broker who can help you identify buyers and pricing strategies to make sure you get the best deal possible.
4. Complete any necessary non-disclosure agreements, before beginning conversations with potential buyers.
5. Most importantly, be able to demonstrate the value of the business beyond the capabilities and strengths of the current owner. This means developing and documenting good processes and having a great team in place to run the business so that the true value of the business can be separated from that of the current owner.
Key questions to ask before the sale
With any major life decision, it’s always important to ask yourself the right questions, and a business sale is no exception. Here are the key questions that Mackiewich advises asking ahead of selling your business.
What am I going to do if I’m not running this business?
Travel, spouse, grandkids are attractive distractions for a short while. But many successful entrepreneurs have a burning desire to create and contribute in a meaningful way beyond family and friends. And they need to consider how they are going to keep contributing and adding value to the world after they sell their company.
Do I have an understanding of what I will lose?
Senior executive roles often come with many perks such as company cars, golf club memberships, administrative support, and travel allowances to name a few. Stepping into a world without these perks or without the support of a good administrative assistant can be challenging. Going from CEO to not knowing where to pick up your dry-cleaning is a big shock. So take some time to take account of what will change when you’re no longer CEO.
Is my business ready for sale?
Do I have my processes, policies, and procedures well documented? Do I have the right people in place for the right jobs? Are my books clean, are all my tax returns filed and my taxes paid, and are all my records up to date? Could someone else come in and seamlessly take over?
Are there any unaddressed skeletons in the closet that could kill the sale?
These unaddressed skeletons may come in the form of disgruntled employees and ex-employees, unhappy customers…even a long-ago inappropriate post on social media. This could include anything that could undermine the sale or diminish the value of the business.
Do I have the right team in place to help me sell and get the most for the business?
Many business owners don’t know where to start with this and often turn to their accountant or a real estate agent to help them sell. These two team members are important for sure, but the business owner should also consider that the team in place that is running the business may not be equipped to properly deal with the transition to a new owner. Other professionals such as coaches, bankers, lawyers, and business advisors may also be worth considering, depending on where you are at in the sales cycle.
When selling is not the answer
On the flip side, maybe the time isn’t right to sell your business.
“If you simply cannot foresee what you will do after you sell the business then maybe it’s not the time to sell,” Mackiewich cautions. “Additionally, if you have a clear succession plan in mind that is agreed to by both the incumbent and the successor, then an outright sale may not be advisable.”
If you do start down the business sales path and you think your business is worth more than what purchasers are offering, it may be time to come back to the table, sharpen your pencil, and figure out alternative strategies or what needs to change in order to improve the value and saleability of your business.
Whether you choose to sell or not, your accountant should be with you every step of the way. Whether they are helping to ensure that your books are in order, assisting with tax and business valuation estimates, or simply serving as a sounding board, they know you and your business well and can be a most valued advisor.
A member of the Integrated Advisory Community, Ryan Mackiewich, CPA, CA, FEA is a Senior Planner with WealthCo. With over 25 years as a CPA, CA providing tax and business advisory expertise, Ryan also holds the Family Enterprise Advisor (FEA) designation and applies it to working with business families to help them effectively transition business, wealth, and roles. When he’s not doing that, Ryan loves to camp, hike, and explore all the wonderful places the world has to offer.
The Integrated Advisory community consists of a network of progressive CPA firms, along with best-in-class professional advisors, service, and product specialists, who work together to deliver an elevated and holistic client experience. One that optimizes both their personal and professional lives with an integrated financial strategy designed to help clients reach their goals.