Consider the paths of two business owners selling their companies after years of success.
One jumped into a deal she arranged with little forethought into what life would look like beyond closing day. The other, after fielding a number of attractive unsolicited offers, followed a more deliberate pace, weighing what would be best for him, his family and his employees.
After a few painful years of working under her former company's new leadership, owner No. 1 caught a break and was able to buy the business back after it neared the point of failure. The second time around, she tapped a group of advisors and developed a plan for her exit and beyond. Today, she lives in semi-retired bliss.
While brushing off the initial large suitors, owner No. 2 focused on solidifying and enhancing the value of his company to ensure its viability going forward, including grooming key employees to assume leadership roles and gradually easing back from day-to-day operations. Seven years later, the company's valuation had grown considerably, little of it was tied to his hands-on involvement and the high eight-figure sale achieved all that the owner set out to accomplish.
"He wasn't ready to walk away seven years earlier, but being offered a pile of money tends to get someone's attention," said Patrick Staudt, a market executive with Bank of Texas Private Wealth. "It made him think 'Am I doing right by what my goals are—not just my personal financial goals but my legacy goals?'
"And by patiently planning and working with advisors, he received a much higher value for the business."
Selling a business that's been your life's focus is challenging at any age or stage. Taking a thoughtful, deliberate approach is essential to emerging from the deal content and ready for whatever comes next.
Natural evolution
Few business owners start their company with the end in mind. The early stage is so demanding, requiring immense amounts of time, energy and resources to gain marketplace traction.
Then, as initial success leads into new opportunities, the thrill of the chase supplants the white-knuckled ride of the first few years. Increasingly, many owners relish the natural association of the company with their identity, and by extension, the business' valuation validates their success.
Yet, while the raw numbers tell one story, many other factors go into the final selling price for any enterprise.
"When it comes down to the true value of the business, a lot depends on where the seller is emotionally and where he or she is in terms of achieving their legacy goals," Staudt said. "If you haven't figured that out when you go to sell, you might be very disappointed at the end of the day."
In short, simply selling to the highest bidder is rarely a good exit plan.
"For certain, you want the best price, but the top offer often comes with hidden costs," Staudt said. "With a little bit of planning and thought, those costs come to the surface and you quickly see that offer may not be in your best interest."
An iterative process
Thinking about your post-sale future is a great place to start the planning process.
Do you want to stay involved with the business? Do you want to completely walk away? How do you want your employees to be impacted? Do you want to be paid in full? Would you prefer to stick around the business, take some money up front and receive future payouts?
Beyond that, are you really ready to stop working? Is your family ready for you to stop working? Are you seeking financial independence? Who else would you like to see achieve financial independence through this sale—family, the management team, employees?
"There are a lot of questions that need to be answered before you put your business up for sale. But you've got to start with that big picture first, understand what your goals are and work backward from there."- Patrick Staudt, a market executive with Bank of Texas Private Wealth
Once you have a handle on where you're headed, Staudt highly recommends that you pull together a team of advisors to help steer you through the process and avoid as many potholes as possible. Ideally, this group includes a financial planner, an accountant, an attorney and an investment professional.
All of them will collaborate with you on a financial plan that prioritizes your hopes and dreams, allows for the ongoing operation of the business and incorporates its sale.
"When you've successfully built up a company, your lifeblood is in it, so you really need to determine if you're ready to turn the page," Staudt said. "Some people don't ever really get there, but a team of advisors can help by playing an important role in leading the owner down the path and asking the questions to get them thinking."
Given all of the emotional, financial and social supports a successful business provides for an owner, a flippant decision on a sale can be painful. To be fair to yourself, your family and all of your company's stakeholders, consider pondering what the future might look like—if not embarking on a full-fledged planning effort—long before you're ready to sell.
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