Many owners grow their business believing that they will simply sell it one day when they are ready and receive enough proceeds, after taxes and fees, to live out the rest of their life. What are the chances of this actually happening? Less than one in four according to business brokers nationwide. Seventy-five to eighty-five percent of all sale attempts fail. Why does this happen? There are many reasons and chief among them:
- Owners don’t have a clear plan for how they will spend their time after the sale.
- Owners cannot get what they believe their company is worth from buyers.
- The business is not attractive to buyers.
- Owners try to sell the business themselves.
- Owners realize, at the last minute, that they will not be getting enough money after taxes and fees.
Six Steps to Selling Your Business to an Outsider
We believe that planning is the most powerful way for owners to improve their chances for a successful sale to an outsider. Here are six steps that owners may follow to put together a cohesive business ownership transition plan:
Step 1 – Getting Yourself Prepared
Devote some serious time to figuring out what you want to do after you sell. This step is often overlooked by owners, which can cause seller’s remorse. Most owners have spent all their time, money, and energy on their business, and it takes time to separate the owner from the business. Gradually spending more time away from the business gives owners the time and space they need to envision themselves without their business.
Step 2 – Counting Beans
Determine how much money you need from the business sale. This step is about taking stock of what you have saved outside the business and analyzing your income and expenses to figure out what you need to “net” after taxes and fees.
Step 3 – Building a Better Box
Prepare your business for sale. Beauty is in the eye of the buyer. There are multiple drivers of business value including strong management (lack of dependence on the owner), clean financials, and increasing revenues and profits. Don’t underestimate how long this step may take.
Step 4 – Follow the Yellow Brick Road
Identify the right buyer. Owners rarely have the reach to cast their net far and wide for the right owner. Owners should work with a business broker or investment banker with experience in their industry. Creating a “horse race” for your company is the most effective way to maximize the selling price.
Step 5 – Art of the Deal
Educate yourself on how your sale proceeds will be taxed and what advisory fees you will have to pay. Entity type and deal structure are the two biggest factors that determine the level of taxation on your transaction. Good advisors will be able to increase your net proceeds and more than pay for themselves as long as you do your part to prepare yourself and your business for sale.
Step 6 – Paint by Numbers
Before going to market, complete the five steps outlined above and pull it all together into a roadmap that you can follow to a successful sale.
At the Business Transition Academy, we offer our book as well as training for owners who want to create their own business ownership transition plan. Want a free chapter? Click below.