Planning The Sale"Every business owner will exit his or her business at some point - whether planned or unplanned "
Extracting the wealth out of one's single largest asset is likely to be one of the most important financial events for a business owner and timing is the most critical factor in securing maximum value from the sale of a business. While numerous factors may be driving a seller to immediately seek divestiture of their business, ultimately, the needs of the buyer and the conditions of the market ultimately determine the timing and value of a business sale.
To shift the balance of power in your favor, having an exit plan and preparing your business for sale becomes imperative. Not having an exit plan in place is like driving at night without headlights. You are not clear where you are headed; you cannot identify obstacles nor determine the optimal direction to get to where you want to go; and all the while your foot is on the gas. In this example, the odds of a negative consequence are great. In business, not having an exit plan is risky too and can have numerous negative effects such as reduced business value, adverse tax affects or even closure of the business.
When you have a good understanding of the value drivers, different types of buyers and market conditions, and have taken the steps to prepare your business for sale, selling your business when you are ready will most likely lead to increased value.
Achieving maximum value for a business requires you to be prepared on multiple fronts and begins with having a clear understanding of your goals and objectives. These objectives can be both financial (liquidity, sale price, taxation / estate planning) and non-financial (succession, legacy & reputation, employee and stakeholder concerns, family dynamics, or other special interests). Your exit plan from the business should support your goals and objectives.
Some of the many questions you will need to ask yourself in preparing your exit plan include:
- Do I want an ongoing management involvement in the business? If so, for how long?
- Do I want to retain a financial stake in the business post-sale?
- Have I determined what is really important to me? For example, do I wish to maximize the value I receive for my business, or are other issues as important or more important?
- To whom do I want to sell/transfer the business-to employees, family members, financial investors or competitors? Do I really care?
- Do I want to keep the business in the family?
- Are there other motivating factors for me? Do I want the business to retain its name and identity following my exit? Is it important that my business retain its independence?
- What are my financial needs?