By Eric Reich
In the last few articles, I focused on business owners starting to plan for an eventual exit from the business. I know most owners don’t want to think about an exit, but guess what? You are going to exit it one way or another. The startling fact that most owners have a hard time comprehending is that 70% of all businesses listed for sale aren’t able to be sold. The reason for that was discussed in the last article surrounding the preparation for the sale.
Selling a business can be challenging. Is the business ready to be sold? Meaning, is it attractive to buyers? Are you ready for it to be sold? Have you planned what you intend to do with the enormous amount of free time you’ll have once the business is gone? Many owners have not, and it is the No. 1 reason that owners regret selling. You need a plan for what you want your life to be like once you retire. Few people can go from owning a business to fully retiring without a plan. And no, golf isn’t a plan. As much as I like it, there are limits to how much you can play without getting bored of the routine.
Step one in a successful exit is knowing if the business is ready to be sold. Is there a management team in place? Do you use the latest technologies? Are your systems and processes in place and well-documented? How do your financials stack up against your industry averages? Are you growing? How is your culture, which is to say do you have the right people, and are they in the right roles?
Step two, as I mentioned, is to evaluate if you are ready to sell. Do you have an actual financial and personal plan for life after the business? Will you have enough money after the sale, net of taxes to be able to live the same lifestyle you are currently living? If not, how can we improve your sale price?
Step three is deciding who your possible buyers are. Will it be an internal sale to employees or partners? Or will it be to an outside, unrelated third party? If it is internal or to an already identified buyer, then you will want to execute a buy-sell agreement. A buy-sell agreement stipulates who can buy your shares, how they can buy them, based on what valuation, under what circumstances, etc.
Getting a professional valuation can help decide what it is worth today, as well as the range it could sell for if it is optimized for a sale. As business owners, we almost always (95% according to business brokers) overestimate the value of our businesses. It’s human nature. When what you think it’s worth and what a potential buyer thinks it’s worth don’t match, you may not be able to come to an agreement. I suggest that you go out and get a professional valuation done by either a business appraiser or a certified valuation analyst (CVA). Ask your CPA, as some CPAs are also CVAs. I think an annual or semi-annual valuation is a good idea to see if the business is moving in the right direction in anticipation of a sale.
Lastly, understand that a sale can take years to happen. Sometimes, 3-5 years are common. Don’t wait until you are burned out or in poor health before you start to prepare your business for an eventual exit. Having it “exit-ready” before you have any interest in leaving ensures that you get the maximum value from your business when you do decide to exit. Remember, you don’t have to do it alone. Line up your professionals to help with the process. Your CPA, business attorney, estate planning attorney and financial planner can all help you in each of the different areas required to make a successful exit.
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Reich Asset Management, LLC is not affiliated with Kestra IS or Kestra AS. The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. To view form CRS visit https://bit.ly/KF-Disclosures.
Eric is President and founder of Reich Asset Management, LLC. He relies on his 25 years of experience to help clients have an enjoyable retirement. He is aCertified Financial Planner™ and Certified Investment Management AnalystSM (CIMA®) and has earned his Chartered Life Underwriter® (CLU®) and Chartered Financial Consultant® (ChFC®) designations.
