The economy is currently a perfect storm for entrepreneurs who are considering selling their business. Company valuations are higher than historic averages because so much money has flowed into private equity as an asset class. However, selling a business is far more complicated than most owners realize.
Selling requires careful planning from beginning to end. It’s important to recognize that there are many different ways to sell a business. Understanding your motivations for selling will help you plan for the financial and emotional implications of the sale.
What is the Goal of the Sale?
An entrepreneur should ask these questions when considering the sale of their business:
- Are you planning on retiring?
- Are you looking for a partner to help grow the company?
- Are you trying to take a smaller role in the business?
Central to all these questions is whether the business owner wants a majority or minority stake in the company after the sale. A minority stake means that the business owner will have much less decision-making power than he/she did previously, and could be bought out.
For many long-time business owners, they need to seriously consider whether they are amenable to taking a backseat in everyday operations and decision-making processes of their former company.
Is Your Business Ready for Sale?
Once a business owner identifies the type of transaction they want to pursue, they need to attract investors and potential buyers. This is a step that can require 12-18 months of preparation. The most important step is valuing the business (typically a multiple of EBITDA) so that the owner and his/her team have an idea of the market value of the company. It’s also vital for business owners to ensure that their businesses can run without them, which typically requires significant process overhauls and documentation. It takes a team to prepare and sell a business, which necessitates the following experts - at a minimum - to represent the company: tax advisor, transaction attorney, financial advisor, and investment banker.
The Financial and Emotional Consequences of Selling your Business
Selling a business can take a toll financially and emotionally.
It is easy for the seller to neglect to scrutinize the tax implications of the sale. Before the sale, a financial advisor can position an entrepreneur to minimize taxes and maximize charitable opportunities. An often-overlooked aspect is what happens after an owner sells out of their business.
For many business owners, their business is a reflection of who they are and their identity is tied to their business. When a sale occurs, the owner’s separation from their business can have a significant impact on their perception of their self-worth, and sometimes they struggle to identify what’s next.
It’s completely natural for a former business owner to hit a slump. As an advisor, True North’s role is to help clients recognize that this post-sale discomfort is normal and discuss next steps with them. After one of True North’s younger clients sold a business, he struggled with what to do with his free time for a year and a half. After significant planning and consideration, he started another business.
True North’s Role in Selling Your Business
When selling your business, True North is with you every step of the way:
- Before the Sale: True North serves as a resource in helping clients make the big financial decision to sell their businesses.
- During the Sale: True North helps clients assemble a team of experts and finds ways to minimize taxes from the transaction.
- After the Sale: True North often takes on a coaching role, guiding clients through the next steps, projects and challenges that surface for a newly retired entrepreneur.
Our goal is to become our clients’ most trusted advisor, even for problems that are not strictly financial.
At True North, we understand that successful sales are a reflection of the team behind the transaction. Our decades of experience in finance have allowed us countless opportunities to develop strong relationships with trusted professionals who can fill key roles at every step of the sales process. We strive to be more than financial advisors and we are ready to help you plan for the financial consequences of selling your business.