Many are calling it the greatest generational transfer of wealth in history. In the United States, approximately 66% of all privately held companies are owned by baby boomers. As this population begins to transition from workforce to retirement, boomer business owners seek to transition their businesses to a new owner.

According to a recent survey by the Exit Planning Institute, 76% of Boomer business owners plan to transition their businesses over the next ten years, representing 4,500,000 businesses and over $10 trillion in wealth. For most business owners, this represents not only the largest financial transaction of their lives but also determines if and how they are able to retire, as the average owner has 80-90% of his or her net worth tied up in the business. The importance of properly planning for a sale cannot be over-emphasized. 

Successfully transitioning your business to a new owner can take months, if not years, of hard work. So if 2016 is the year that you decide to sell, the preparation starts now. Here are a few important tips to help you get started:


Define your objectives

With any project, objectives should be clearly defined prior to commencement. Objectives should be both financial and non-financial, and should contemplate both business and personal issues. 

Financial Objectives: Work with an M&A firm to determine your business’s fair market value and to understand the potential range of outcomes contemplating both deal structure and type of buyer. Once you have the valuation in hand, meet with your wealth advisor to evaluate the impact of various outcomes on your overall financial plan. Ask yourself a simple question: can you afford to sell at the appraised value, and can you do so under reasonable terms to a buyer that aligns with your non-financial goals? 

Non-Financial Objectives: When would you like to retire? Who is the ideal next owner? Which is more important, the amount of money you receive or the type of buyer to whom you sell? Answering this third question enables you to align financial and non-financial objectives and determine the appropriate time to pursue a sale.

Plan on a lengthy process

Expect it to take between 6-12 months to sell your business. Further, a seller’s obligations rarely end at the closing. There are always post-closing commitments, and in some cases sellers continue working in the business for several years after selling. When selling to another owner-operator, expect a brief transition period as the new owner should be able to assume the seller’s duties relatively quickly. If selling to a corporate or private equity buyer, however, there is a possibility that the new owner will require you to continue working in the business for a longer period of time.

Assemble a team of advisors

Several advisors will play a key role in ensuring that you craft an optimal exit plan and maximize value in a sale. An M&A Advisor or Business Broker typically takes the lead, managing the entire process and coordinating the advisory team. Look for a firm with experience in your industry. Ideally, the firm should be able to help you prepare for the sale in addition to finding a buyer and negotiating the transaction.

Your wealth manager’s role will be to help you understand the implications of a sale on your personal life, specifically as it relates to retirement planning and any inheritances you wish to leave, as well as to capitalize on any estate planning strategies that can help minimize your tax burden. Keep in mind that estate planning should occur years in advance of a sale to have maximum impact. 

Your accountant will prepare financial statements to be shared with prospective buyers and provide input on tax matters. Your attorney will draft and review the transaction documents and advise you on any legal concerns. Make sure to hire an M&A attorney with past experience advising companies in similar industries.

Each of these advisors plays a distinct role in your success. Avoid the temptation to eliminate any of their roles, as the small cost savings aren’t worth the risk to either your financial future or the legacy of your business.

Prepare yourself to let go

One of the hardest parts about selling a business is letting go. Once you receive payment of the purchase price, you no longer control the business. For some, this means working for a new owner for several years. When was the last time you had a boss? Can you function in an environment in which someone else calls the shots?

For others, selling means exiting the business altogether. What are you going to do next? If you sell while in your 50’s or 60’s that means you may live for another 30-40 years. There are hundreds of examples of business owners who experience declining health and depression upon selling their business. Their identity was so directly tied to the business that they felt as if they had lost their sense of purpose once they were no longer a business owner.  Make sure you’re mentally prepared to move on so you can maximize the rest of your life.

When preparation meets opportunity

There are more opportunities to sell a business today than ever before, and owners benefit from a very diverse set of buyers as well as sky-high valuations. Despite the favorable environment, however, not every business can be sold. If you own a business and plan to sell in the next three years, your goal should be to position yourself to attract as many buyers as possible. To do that, the preparation starts now.


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