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Exploring Your Business Transition Options

Posted by Kathy Richardson-Mauro on Tue, May, 19, 2015 @ 10:00 AM

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If you are considering selling your business, you need to consider your financial as well as non-financial goals including:

  • How much money you need
  • What is important to you

In this article, we'll look at these various considerations and talk about how to begin determining which is the best business transition option for you and your business.  

Financial Considerations

When considering your selling options, the financial considerations are often seen as the most important. Most business owners believe that the higher the sales price, the better the deal.  But most business owners have never determined how much money they really need to net from their business sale to achieve their financial goals. The key here is net, which is what the owner “takes home” after transaction fees and taxes. Taxes and fees can gobble up a major portion of your business sale proceeds. Unfortunately, due to a lack of time and planning, these items are not usually considered or calculated far enough in advance.

Non-Financial Considerations

Even though the financial considerations of your business transfer option will factor heavily into your decisions, don’t underestimate the importance of weighing the non-financial aspects of each transfer option. The non-financial issues are equally important and, if not considered, can contribute to a condition known as “seller’s remorse.” Seller’s remorse most often occurs when owners have no plan for what they will do after they are no longer working in the business.  As a result they often feel irrelevant and have no identity which causes a sense of emptiness and regret. Things to consider include: What are your personal post-transition plans? What do you really want to accomplish with this transition? How will each transition option impact and affect employees, family (those involved and not involved in the business), customers, community, and your legacy? What matters most to you? These questions can only be answered by you and it takes time to figure it all out.

Determining Which Business Transfer Option is Best for You

If you plan ahead, you may have several different selling options, which need to be aligned with your financial and non-financial goals in order to accomplish a successful sale. If you are considering selling your business, you may be under the assumption – held by most small business owners – that selling to a third-party buyer is your only option. It may not be. A third-party sale can be the most difficult to achieve and may not satisfy your objectives. There are two general categories of business transfers – internal and external. “Internal” refers to selling or gifting the business to an insider, such as key employees, managers, or a family members involved in the business. “External” refers to selling to an outsider, such as a competitor, customer, or investor.

It is important to understand that different transfer options have different transfer values, as well as different fees and taxes. There are pros and cons to each type of transfer and assessing the different options for suitability or how they will either accomplish or not accomplish your financial and non-financial goals is a crucial step in planning your transition. The more time you give yourself to plan the transition from your business, the more options you will have. In upcoming blog posts, we will discuss the different options – both internal and external – that are available to you.

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Topics: business owner transition, business ownership, business transition, business ownership transition