This is Part 2 of a Series about planning for succession at the time that you decide to leave your business. Last week’s blog can be found here, and look for parts 3, 4 and 5 in the coming weeks!
When planning for your exit from the business, other than walking away and closing the doors, you truly only have 4 options. Each one of them has its own challenges, advantages, and opportunities. Those options are selling the business to a third party, selling the business to employees, doing an Employee Stock Ownership Plan, or transferring the business to family. This week, we’re going to focus on selling to a third party, which is what 29% of owners choose.
There’s a couple of things we want you to be aware of when considering a sale to a third party:
KNOW YOUR BUSINESS VALUATION
The surest way to know your business valuation is to hire an expert. A business broker that has experience with buying and selling businesses in your industry is going to be worth their commission in the investment of their knowledge. A lot of Business Owners are shocked at the value of their business, either because the assets and client list are more valuable than they thought, or in many cases, the value of the business is not nearly where it should be if the owner exits the business.
The businesses that are not as valuable lack systems, delegation, and stable employees that allow for continuity of customer care, even if the Business Owner is not working in the business daily. Working with a coach can help you raise the valuation of your business by guiding you to put each of these things in place. Starting right now increasing the value of the business can pay dividends (literally!) in the future, and it’s not too late to start. We recommend starting the planning process 8-10 years before walking away from the daily operations of the business. Business Owners have worked likely their whole lives to build a business that they are proud of, and we want to see them keep that value and be compensated for it.
Whether it is planned short term or long term, a sale and transfer of ownership and daily control of a company is without a doubt going to affect your employees. There’s rarely a time when day to day business keeps going without interruption when someone from the “outside” takes over the business. In this instance, communication is priority number one. Communication to employees is always important, but in this case, keeping the employees informed about upcoming changes can ensure their happiness, productivity, and more for the long haul. Does your team have to know what is happening every step of the way with your decision to sell the business? Definitely not. However, changes in the business upon transfer of ownership should not come as a complete shock to them. A high level of Emotional Intelligence and empathy will be great assets in this situation.
Hiring a financial coach or advisor (if you need a referral, we have experts on hand that would be a great asset) is essential to assuring that selling the business is going to put you, and in turn your family, in a great financial position. The tax implications for different type of corporate structures can be vastly different, and a financial expert can assist with setting up your company for long term success.
Another financial consideration of a sale to a third party is that all of your children or family members can receive an equal share of the proceeds from the business. We’re going to talk about transferring the company to children/family in a later blog, but a third party sale can make this simple. Key employees can also be financially compensated as a portion of the sale proceeds as well.
Planning for succession is a complex, emotion-filled decision that every Business Owner needs to make, sooner than later. Knowing all the options is the first step.
Join us for the next step on this 5 part journey! Read Part 3 here.
Need help developing a plan for you to exit the business as the Business Owner? Unsure about what will happen when you retire or pass away? We can help coordinate a plan, communicate it to the team, and move forward together as strong leaders. Contact us today to schedule your no-cost, no-obligation business evaluation today.