How to evaluate if you are ready to turn over the reins…walking away from your life’s work is a big step that does not come without its obstacles. Determining your readiness to sell your business comes down to two factors: 1) your financial readiness to sell a company, and 2) your emotional readiness to sell a company.
Assessing Your Financial Readiness to Sell a Company
Your financial situation, the easier of the two factors to consider, is oftentimes the one most overlooked by sellers. The key question is whether the proceeds you will receive from selling your business will give you the financial means to leave the business.
For most business owners, the value of their business is a large chunk of their net worth. Unleashing that value is critical to reaching their post-sale goals. You are one of the lucky ones if the proceeds of your sale are not required for you to retire or move on.
On the other side, selling a business involves stopping your access to the money you have been drawing out of the business every year. Ideally, the proceeds from the sale of your business will be large enough to cover your obligations going forward.
How much money do you need and what sale price will give you what you need? Can your business command that price or anything close to it? If not, now may not be the right time to list your business for sale.
To best assess your financial readiness to sell a company, it is often a good idea to engage the services of a reputable wealth manager, an individual who can analyse your entire portfolio and calculate your post-sale needs.
One of the key steps in completing this financial analysis is engaging with a knowledgeable independent third party to value your business. As business valuation is a complex matter, it should only be undertaken by professionals with the appropriate certifications, years of experience and access to a database of comparable transactions. Most business intermediaries will have a handful of appraisal and valuation firms or brokers that they work with on a regular basis and can offer a recommendation.
After receiving a completed business valuation, your wealth manager can now appropriately analyse your portfolio and understand whether a sale will yield enough money to fund your projected retirement and allow you to sustain the lifestyle you want post-sale.
If the proceeds from the business sale are not enough to allow you to leave the business, you may need to focus on spending a few years to build up the value before you sell, or you might consider lowering your targeted financial spend after the sale. Alternatively, you might need to produce a way to supplement your income and bridge the gap.
Assessing Your Emotional Readiness to Sell a Company
The more elusive part of evaluating your readiness to sell is your emotional readiness. Can you really walk away from the business you built for so many years?
While most transitions will require the seller to stay in touch with the new owners for some period, there is still that moment when your services will no longer be needed. What are your plans for when that day arrives?
It is best if, as a business owner, you can detail exactly how you are going to spend your days after the sale. This gives a clear indication of whether you are ready to sell. For instance, will you plan trips and activities with friends, kids and/or grandkids? Will you pursue a hobby? Or even run a smaller business in a completely different field? If you cannot describe post-sale life, you should question your sale decision.
While there might be some legitimate reasons an owner has not planned this next phase, burnout, a partnership break-up or an illness, a seller’s motivations matter in so many ways.
Knowing the seller’s ‘next steps,’ and motivations for selling, can be extremely important in the actual transaction process. It can be an indication of how they will handle a business negotiation, their willingness to provide the necessary training and transition to a new owner, their flexibility and patience with a deal, and most importantly, their receptivity to heeding the advice of any professionals helping to manage the transaction. If sellers are not emotionally ready or committed to selling, they are unable to disengage from the business resulting in time, energy and capital of all parties involved.
To this end, it is important to ask yourself the tough questions before pursuing the difficult and long task of marketing your business for sale. Will you have the necessary funds for your desired post-sale lifestyle, and are you emotionally ready to pursue a life after business ownership? If you cannot develop a post-sale picture of your life, you may need to keep running the business, assuming you have the will and drive to remain competitive and relevant.
Representing a wealth of knowledge and first-hand experience, partner with an expert in the field of mergers and acquisitions. I am a seasoned executive who brings over 24 years of proven experience in merger/acquisition, sales, service, marketing and operations to my clients. Feel free to contact me for a no-obligation confidential chat to discuss your plans, options in selling your business.