If you own a small business, it’s important to make preparations to sell the business sooner rather than later. In fact, many experts will agree the day you start or buy a business is the time when you should prepare your exit strategy. So, whether you’re years away from considering an exit strategy or just around the corner from putting your business on the market, understanding the best time to prepare for this significant milestone can make all the difference.
Your Business is a Valuable Asset
Starting a small business is a viable option for many people. Once you go into business for yourself, your main goal usually is to make a paycheck to support you and your family. And you’ll likely work long hours trying to develop a successful business. Many times, business owners aren’t looking at the big picture, as they’re focused on day-to-day business operations. But before you realize it, 30 years have passed and you start to think about what to do with this entity you have built.
Many business owners rarely think about their business as a salable asset until something happens that causes them to start the process. You may be completely burned out, have a health-related issue or your spouse is encouraging you to retire. And sadly, when these events occur, it usually puts the owner at a disadvantage. It generally takes years to put a business succession plan in place that will maximize the value of your business.
Incorporate a Succession Strategy into your Business Plan
Typically, once retirement enters your mind or worse, there’s an urgency to sell the business. And if you haven’t been preparing for this all along, you may not have built the business in such a way that you can maximize its value when you sell.
If you don’t have an exit strategy and you’re just beginning to think about retirement, you should give yourself a good three years to prepare. And if you have the time, five years is ideal! Don’t forget, a lot depends on your personal situation. In this case, how much time you’ll need for preparations is based on many factors.
For example, it will depend on:
- The size of the business
- If you’re selling just the real estate or the whole business operation
- If you’re selling to current employees, a family member, or a complete stranger; and
- much more.
There are different implications with each option. And there are lots of different scenarios to think through. The last thing you want to do is sell to the wrong person. There are situations where the person you sell to will fail and you find yourself back in the business again trying to salvage it. Hence, why you need time to think through what’s best for you.
Planning a Viable Exit Strategy
A reactionary plan is not as beneficial as planning early, and therefore it is crucial to get everything in order long before that day comes. Being prepared can significantly increase the value of your business at the time of exit. Not planning a viable exit strategy puts the business owner, and their personal financial future, at a true disadvantage.
Also keep in mind that the outright sale of the business can be your exit strategy. As the business owner, you should always be thinking about what you need to do to maximize the value of the asset so you can sell the business at the best possible return. Planning for that event early allows you to get the most from the asset that you spend years growing.
Business Succession Transition Team
When you decide to sell your business or transfer it to family members, you will first need to assemble your transition team and start the process years before you would like to move on. This will give you plenty of time to assemble your team and make the necessary adjustments to the business and to your personal financial situation to make the transfer successful.
Depending on the size of your business and other factors, at a minimum, you will need a comprehensive financial planner who understands both business and personal finances. For the business owner, your personal and business finances are inextricably linked.
Other professionals that you most likely will need include a:
- Business attorney
- Valuation expert
- Business broker
- Risk management specialists
There could be the need for others if you wish to grow the business before you transition such as a:
- Business consultant
- Marketing professional
- HR consultant
And depending on how you plan to transition the business, the following may also be necessary resources that can help you with the plan.
- Real estate specialist
- Mergers and acquisition specialist
- Venture capitalist
- Financing specialist
You might also need a behavioral specialist if you plan on an internal transfer to family members and they don’t play well together in the sand box. As you can see, the situation can be complicated and perhaps for some mind boggling. However the payoff can be and usually is dramatic.
More Prepared, More Likely to Succeed
Like anything else in life, the better prepared you are the more likely you are to succeed. And you don’t have to do it alone. You can hire a consultant who can help you every step of the way. It’s also important to involve a financial advisor who will also be a valuable member of your team!
And like any aspect of business, the more qualified the people are you put on your team, the greater the likelihood for success. Now is the time to get started looking at your business as an asset to be maximized today and choose your advisory team wisely.
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