Holiday shopping: How advisers might approach selling a business
As we approach the end of yet another year and start thinking about New Year’s resolutions, perhaps you may be contemplating the sale of your business in 2019 or 2020. During the downtime of the holidays when you are relaxed and sharing some quality time with family and friends, it’s a good time to consider what you want to be doing the same time next year.
You probably now have a very good idea what the current year’s business results have been. You may have even completed your business planning and objective setting for next year. Hopefully that is the case. And as a result, you may have a fairly good idea of what you think your business is worth — or at least what you would like to see as a purchase price — albeit there may be a gap between perceived and actual value.
On this latter point, you might consult with a business adviser to get a realistic idea of market valuation to at least frame your expectations. In any event, as we turn another page on the calendar, many of us take the time to reflect upon our business and personal goals. So what should you do?
A logical place to start is to talk to your spouse and immediate family. They know you best and should have your emotional, physical and financial wellbeing prominently in mind. Share with them your thoughts about selling your business, and any thoughts you have about what you want to do next.
Selling your business, regardless of your age, does not necessarily mean retiring. You may want to sell your firm on a structured buy-out and continue to manage the business, albeit with a lot more money in the bank and a percentage of the free cash flow. We know of many owners that exit a business only to launch another career in a field that heretofore was simply an avocation. Or you may decide to consult within your industry. Or philanthropic activities may be a focus for you.
Whatever your dreams are, let those closest to you know your thoughts. Then ask their opinions. You might be surprised at the reaction and input that you get. But remember, they know you best and they have your best interests in mind.
The other reason for sharing your plans is to open a discussion for anyone close to you to step forward and voice their interest in purchasing your business. If someone does, it might make for an easy transition and sale. But even if no one comes forward, at least you have the peace of mind of knowing that you gave them the chance, so no one five years from now can second guess your decision or lament about never having the opportunity to take over your business. Though it sounds simple, it’s very often overlooked. Businesses come and go, but your family will be with you the rest of your life.
Next, meet with one or more of your trusted business advisers: your accountant, banker, attorney, financial planner or business adviser. Their businesses probably slow down somewhat around the end of the year, and they should be more easily accessible to you. Share your vision of your exit from the business and your personal plans for the future with them.
You will be surprised at how helpful they can be with introductions to potential buyers, thoughts about deal structures, tax planning, new career options and a myriad of other helpful ideas. You’ve probably been doing business with some of these relationships for years. Take advantage of their knowledge of your business, their understanding of your motivations, and their contacts that might be potential buyers, merger candidates or transaction financing sources.
Ultimately, you want to develop an action plan for yourself and your business. If your decision is to proceed with a sale, put together a list of deal terms that are most important to you: purchase price; amount of cash at closing; earn-out period; any stock or debt that you might accept as part of the transaction; employment or consulting contract terms; etc. Have a general idea of what you want and how to get it. And consider the timing of any transaction that might be consummated. Do you want it to close in 2019? Or would a later closing be better from a tax perspective?
Consider developing a short list of potential buyers that you already know: friendly competitors, synergistic businesses, P&C agencies, wealth management firms, etc. Develop a timeline consistent with your expectations for this initiative. After all, this process will take some time and will require your personal attention. There will be conference calls, face-to-face meetings, negotiation sessions, term sheets to review and so on.
Thereafter, a serious buyer will engage in a due diligence review of your business that might actually surprise you with some things you didn’t know about your business today. Ultimately, there will be definitive agreements and a closing. Each step will have its own set of frustrations, however it is a means to and end. So prepare yourself mentally and emotionally now for the journey ahead, and the trip will be more enjoyable as a result.
So as you take a breather this holiday season and reflect upon what you have accomplished, consider what you want to be doing this time next year. It will make next year’s holiday season all the more rewarding.