2019 could be a pivotal year for business sales, according to Bob House of BizBuySell in a recent Inc. article. For a number of reasons, including the torrent of baby boomer owners looking to sell their businesses and the predicted slowdown of the economy by 2020, he believes that: “For owners waiting on the right time to sell, it might be wise to accelerate the process and make 2019 your selling year.” And, we agree. Let’s discuss some activities that you can start now to prepare for your business transfer in 2019.
Get Yourself Prepared
First and foremost, you want to make sure that you’re personally ready for a life outside of your business and financially ready to sell your business or transfer it to someone else.
Personal Readiness – You should devote some serious time to figuring out your future goals and what you want to do personally after you sell your business. This step is often overlooked by owners, which can lead to feelings of regret after the sale. You’ve probably spent many years of your life on your business and it takes time to separate your personal identity from your role as an owner. Gradually spending more time away can provide you with the time and space you need to envision yourself outside the business.
Financial Readiness – Exiting owners are often surprised to learn that their existing financial plans are not adequate for their post-transition needs. The most significant figure owners need to determine is their Wealth Gap or how much they need from the sale of their business, after taxes and fees. You’ll need to analyze your current net worth, determine your financial needs post-transition, and calculate your Wealth Gap.
Know the Value of Your Business
We find that owners frequently don’t know what their business is worth if they were to try to sell. If you’re thinking about selling, this is of critical importance. We urge all owners to obtain a baseline estimate of business value so you can determine just how much you’ll need to grow in order to exit and whether the proceeds from the sale will be enough to meet your financial retirement needs.
This exercise can be eye-opening. It can help you uncover items that need to be addressed before an internal or external buyer’s scrutiny (due diligence) begins, and it can provide you with the opportunity to shore up any weaknesses and maximize value.
Invest in Business Improvements
There are many drivers of business value beyond profits, including strong management, market share, reputation, quality products and services, and processes and procedures. These are just a few of the things that buyers will review when they consider whether to buy your business and how much they are willing to pay.
Now is the perfect time to get everything in order. Invest time and energy in your key management team. Establish and document your policies and procedures. Improve your marketing efforts. Upgrade outdated equipment. Ensure that your facilities look their best. Give your business a fresh coat of paint – both literally and figuratively – to put it in the best light for potential buyers. Sellers pay more for high quality businesses, and it can take a good deal of time and effort to prepare your business for sale.
Consider Your Exit Strategy Options
Will you transfer your business internally to family members, employees, or key managers, or will you look to sell externally to an outside buyer? You’ll need time to understand the pro and cons and determine how much money you will net from each transfer option. And you need to carefully assess the non-financial ramifications of each exit strategy and see how they match up with your personal goals. The decisions you make will have an impact on your legacy, your family, your employees and ultimately, your own future and retirement.
Start Your Exit Planning Now
While this is by no means a comprehensive list of everything you’ll need to consider as you start your exit planning process, it’s a good place to start. If you are thinking about exiting your business, now is the perfect time to prepare for your future and develop your Business Ownership Transition Plan.
Take advantage of the current strong market for business sales and your opportunity to extract as much value as possible from the business you’ve worked so hard to build!