Whether you sell next year or next decade, sell to family or an outside buyer, figuring out how to eventually exit your business will help you to get what you want. First in a three-part series.
Part 1: A Plan to Sell Your Business
You likely can't imagine a day without your business. Yet that day will come.
Owners and businesses part for various reasons. You may want to cash in. You may want to retire. You may want to pursue another business opportunity. You may want to leave a legacy for your kids. You may realize you've taken the business as far as you can using your skills and knowledge, and want a buyer with different abilities to take it to the next level.
Whatever your motivation, you will one day leave your business. And it's better to plan your eventual exit now, because you'll be able to prepare for the process, involve the people you want to involve, and, hopefully, get a higher selling price.
Set an approximate time
Pick a target two-year window to sell your business. It's difficult to set a specific sell date because there are so many variables involved: market fluctuations may increase or decrease your price, children take longer to learn the ropes of the business, or your retirement dreams escalate and you decide you'll need to work a little bit longer to up the selling price.
Of course, that date can't be arbitrary – it must jive with the rest of your plans, such as retirement, personal financial needs and any business objectives you want to complete.
Sell to family or strangers?
The first step to transitioning ownership to family involves open communication: ask your children if they want to take over the business. If the answer is yes, proceed to a succession planning expert who can help manage the sometimes sticky process of family business transfers.
Work back from your exit date to prepare a laundry list of to-do items, which should include things like arranging acquisition financing with the kids, management grooming to prepare your son or daughter for the helm, and, when the time is right, a round of introductions to key suppliers and supporters of your business. Along the way, draft a plan that eases you personally out of the business. No hanging-on allowed.
It may be a non-starter: if you don't have any children, and none of your siblings or nieces or nephews or cousins are interested in your business, then you will obviously be selling your business to a stranger. Shop for a reputable business broker to represent your company to possible buyers – or, if your revenues exceed $3Million, consider hiring a Mergers and Acquisitions firm to do the deal.
What to do with the cash
Wealth management is a problem we all want to have. With money from the sale of your business – good news – you can hire wealth management experts to provide advice.
Start speaking with financial planning and wealth management people long before you begin the process of selling your business. These experts will help you to identify an amount of money you need to realize from the sale of the business in order to satisfy your retirement plans. And, when the business does sell, they'll help you with a strategy to minimize taxes and maximize returns on any subsequent investments. Contact your business banker to get started.
These are big steps to take and important decisions to make, so give yourself enough time to chew on them. Talk to people whose opinions you value. Read stories about other entrepreneurs who have sold businesses. And do what you can to break away from the busy workday to think about the end of your time with your business.
Roger Pierce is one of Canada's top small business experts. He takes what he's learned from starting and running 12 small businesses and shares it with thousands of entrepreneurs worldwide in articles, blogs, videos and presentations. He's also co-author of the book, Thriving Solo: How to Grow a Successful Business.