As entrepreneurs frequently have 80-90% of their wealth tied up in their business, a personal financial crisis could easily come about in the absence of proper planning. This is especially true when one begins planning to sell their business, which they’ve often spent a lifetime building.
Business owners should be rewarded for their sacrifice and hard work. Unfortunately, many entrepreneurs are often surprised to learn they did not get all they might have from selling their business. This frequently is due to a lack of preparedness and/or unrealistic expectations. Entrepreneurs often do not spend nearly as much time planning to sell or exit their business compared to the time they spent launching and maintaining it. Such unpreparedness can lead to insufficient sales results.
My parents were entrepreneurs who lived the American Dream. Through their experience and the experiences of others, I saw how effective, smart exit planning can be when it comes to maximizing value for a business owner. The truth is many entrepreneurs do not get what they should from the sale of their business.
Getting the Maximum Value
What many business owners are actually asking is: How will I get maximum value for my business so I can live the next phase of life on my terms? While there almost certainly are other concerns, there are often two major questions to answer:
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How will I replace my cash flow?
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How will I live my post-business life?
To efficiently sell a business and transition into the next life phase, one often needs objective planning. The news is not always good for those who fail to plan. Many have unrealistic expectations as to the actual value of their business on the open market and from where capital may come to make a sale.
The top three reasons for deals failing to close are:
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Valuation gap
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Unreasonable seller demands
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Insufficient cash flow
Personal factors to consider include:
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How will you replace your income?
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What about tax-minimization?
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Is your spouse/family in agreement with this decision?
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Will you need life, health or long-term care insurance?
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Legal issues: is your business the subject of a lawsuit or lien?
What to Do
Most business owners do not fully realize the many potentials a formal exit strategy can offer. Meeting in a professional setting under the auspices of an independent, seasoned advisor can help you objectively plan the sale of your business. In addition to getting the right price at the right time, it’s also about financially preparing for your next life phase.
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Can trade association contacts or industry consultants recommend qualified buyers?
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Do your company’s retention plans make it worthwhile for key talent to stay with the business?
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Will you stay on for a predetermined period to help manage the transition?
There are no small business decisions. Selling a business is a major life event and you only sell your business once. No one likes leaving money on the table. The exit plan is an important but often overlooked strategy. It’s important to make the most of this opportunity.
Rocco A. Carriero, MBA, CRPC®, APMA®
Private Wealth Advisor
President & CEO
Rocco A. Carriero Wealth Partners
A private wealth advisory practice of
Ameriprise Financial Services, LLC