Business Perspectives

April 11, 2013

Before selling your business, build a transition team

Every privately held business will sell, change owners or close at some point in its life cycle.

Every privately held business will sell, change owners or close at some point in its life cycle.

That is a very powerful statement, one that many business owners fail to take into consideration until it is too late. The selling or transfer of ownership of your business is one of the biggest decisions that you will make in your life. Careful planning and preparation, sometimes beginning years in advance, can be critical to improving your value and marketability. This planning not only allows you to position your business where you can maximize your selling price, but may make it easier to sell with terms and conditions that are more favorable to you.

Detach yourself from your business and take a long, hard look. Would I want to buy my business? Could I afford to buy my business? Will I earn enough to service the debt, provide a reasonable living wage for my family and produce a worthwhile return on my initial investment? Could I expect a new person to take over and replace me in a reasonable amount of time? If you answered “no” or are unsure of the answers to any of these, you may need to refine your plan.

Things you should look at include:

• How have my sales been the last three to five years? Are they going up, down or are they stable?
• How has my take-home compensation been over that same period of time?
• Does the business need me there every day to operate?
• Are my books and records accurate and easy to read?
• Am I realistic in my expectations?

There is not enough room in this column to list all of the things that can affect the value of your business. The important thing to know is that it can take time to get your business in order. A buyer looks at the overall opportunity, ease of transferability and performance over the past few years in making a decision. You need to get your business in order and have a transition team in place.

Your accountant, attorney, business broker, banker and financial adviser can all play key roles in the sale of your business and your entry into the next phase of life. Each can provide valuable insight, guidance and support throughout the process. These professionals can help you answer other important questions:

• How is your business valued?
• How are buyers secured confidentially?
• Is there a best way to complete the sale and minimize my tax consequences?
• Am I legally protected?
• How am I going to invest my proceeds?

You know what it takes for your business to be successful. The professionals on your team can help you successfully transition into the next phase of life.

The two most common reasons people sell their business are retirement and burnout. Both are extremely emotional times. Assembling your team and seeking their guidance well in advance of either of these times is a wise and prudent move. If you assemble your team and start the process when you have reached the emotional end of the line, you are more likely to build an unqualified team, be receptive to unrealistic advice, make foolish decisions and enter into agreements that you may one day regret.

There are “professionals” out there who will take advantage of your emotions and inexperience. Having your team in place and your plan ready to be implemented when the time arrives minimizes the odds of this happening.

There are several business transfer specialists living right here in Wichita. You owe it to your business, your family and yourself to interview and establish a relationship with one who you feel suits your needs. Don’t be afraid to ask for references and verify what you are told. Never sign a listing or marketing agreement to sell your business unless you have sought the counsel of at least one of the other members of your transfer team. The primary reason that businesses do not sell is unrealistic expectations of a selling price. You want to be sure you are not being led down this road.

All business brokerage offices should have a list of things you can do to maximize the salability and selling price of your business. In our office, this list is more than 25 points long. In addition, an experienced office should have a good understanding of the typical buyer for your business. Contact them to learn more.

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