After working for years to build a flourishing business, maybe you’re ready to start your next chapter – and want to unlock the wealth you’ve created through your company. It’s time to sell.
As more business owners reach retirement age, it’s estimated that more than 12 million businesses will change hands in the next decade or so. This business transition can be an exciting opportunity, but it’s also a major transaction. Let’s look at some of the key steps you’ll need to take.
Define Your Goals
Your priorities will influence how you go about selling a business, so be clear about what you want to achieve. Common goals include:
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Maximizing the proceeds from a sale to fund your retirement or a new business venture
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Selecting a buyer who fits well with your company culture
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Ensuring a smooth transition for your employees and customers
Consider Your Approach
When selling a small business, you can take a few different routes. Each has its advantages, potential challenges, and unique requirements.
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Transfer ownership to your employees, such as through an employee stock ownership plan (ESOP).
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Pass the business to family members. If this is your approach, a specialized banking team experienced with family businesses can help with transition planning.
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Sell to an outside company and exit the business altogether.
For this discussion, let’s assume you’re seeking a third-party buyer to take over the business.
Gauge the Opportunity
One consideration is timing: Look at your market, industry and the broader economy to see if today’s fundamentals could support or weaken your sale price. When courting buyers, can you make a compelling case for ongoing growth in your business and industry?
Selling a business also has major implications for your personal finances. Take stock of your living expenses and financial goals, now and in retirement, to better understand your income needs. Bear in mind how debt repayment and taxes can affect your proceeds from the sale.
Assemble Your Team
Selling a business is a process with many moving parts. Early on, you’ll want to assemble a team who can provide specialized expertise. It helps to have one trusted advisor who will coordinate this effort.
Your team may include:
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A business broker who can help you obtain a small-business valuation, prepare a prospectus and help you access a large network of potential buyers
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Legal and tax professionals who can help structure the deal to support your needs (e.g., tax efficiency)
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An experienced financial advisor to help incorporate this transaction into your personal financial planning
Organize and Update
While you can get a sense of your business’s value through an appraisal, your sale price ultimately depends on what a buyer is willing to pay. To that end, you’ll want both your business’s financials and operations to be in the best possible shape.
When performing their due diligence, buyers will review documents like your income and cash flow statements, balance sheet and recent tax returns. Work with your accountant to prepare up-to-date financial statements and identify potential challenges to address, such as recent cash flow issues or business risks (e.g., relying on a single client for a disproportionate amount of your revenue).
You can help make your business more attractive to buyers by diversifying revenue streams, addressing excess inventory, gaining operational efficiencies and reducing expenses.
Structure the Deal
Once you’ve identified a buyer, you and your advisory team will need to work out the specifics with the buyer. Common questions include:
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Will the sale affect how the company is organized?
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How will you receive payment?
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Will you need to stay on in a temporary advisory role to support the transition?
When discussing the terms, you may also focus on ways to protect your business’s reputation and your employees’ jobs.
Support Your Team
Retaining long-time staff can be essential to keeping the business running smoothly. After all, they are familiar with the day-to-day workings of the company and often have close relationships with customers.
When it’s time to announce the sale to your staff, emphasize their value to the company’s ongoing success. Offering bonuses or incentive plans and explaining how you’re working to help the transition go smoothly can help you to reassure and gain buy-in from key employees.
Complete the Transition
After the sale, you’ll need to make sure the new owner has all the information they need, such as:
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Logins for computers, software, and online platforms
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Your client list
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Staff contact info
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Supplier and vendor info
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Vehicle and building keys, alarm codes and safe combinations
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Operating manuals for business equipment
You may also need to cancel services – such as utilities, insurance and your lease – or transfer them over to the new owner. You may also need to collect accounts receivable that won’t be transferred to the new owner and file forms with the IRS to wind down your business entity.
We’re Here for Your Next Step
Selling a small business is an exciting opportunity with significant implications for your personal finances. Learn how Amegy’s Wealth Management professionals can support this step through a wide range of financial planning services, including retirement and business succession planning – all tailored to your unique goals.