Many business owners choose to sell their businesses to third parties for several reasons. If you’re thinking about pursuing a third-party sale as your business exit strategy, consider these four steps to prepare yourself for a successful third-party sale.
Of course, as with any plan for a successful future, your first step is to determine what it takes to achieve financial independence with help from your Advisor Team.
Install Next-Level Managers
It’s difficult to overstate the importance of next-level managers. This is especially true if you’re considering a sale to a third party.
A strong next-level management team is the foundation of your company’s value to outside buyers. They often drive operations, create new efficiencies, and, most importantly, keep the business thriving after you leave it.
If your company relies on you for its success, buyers may hesitate to consider your business. Generally, buyers are most interested in businesses that run smoothly without the owner at the helm. Next-level management teams position you to leave the business on your terms.
In some cases, business owners who have thriving businesses but no next-level managers must either postpone their retirement or stay with the company after they’ve sold it. This is often not ideal for many business owners.
Create Business Continuity Plans
Business continuity plans are non-binding guides that help your family and business address an unexpected event, such as death, incapacitation, or something else that prevents you from running the business.
Having this kind of plan can provide clearer guidance about your goals. For many business owners, planning for a successful future doesn’t end with achieving financial goals. They may have other aspirational goals they’d like to achieve in tandem.
For example, say you were in the middle of planning a third-party sale and were suddenly incapacitated. Your family and advisors may know that you wanted a certain dollar amount for the business. What they may not have known is that you also wanted to keep the business in your community. But the only way to achieve your financial goal at the time you were incapacitated would be to sell to someone who wanted to move the business out of the community.
A business continuity plan can help you elucidate your goals in instances where you cannot speak for yourself.
Assemble a Negotiation Team
Third-party buyers almost always assemble top-notch negotiation teams when purchasing a business. Though business owners are good at a lot of things, negotiating a business sale is an entirely new arena for many.
Negotiations are often complex and require more time than a business owner has to fully dedicate themselves. This is especially true if you don’t have a next-level management team.
It’s no secret that buyers want to maximize their value with any business they purchase. They’ll do comprehensive due diligence and use their findings to pursue this goal.
Assembling a strong negotiation team can help you find weaknesses in your business and then strengthen them before a buyer finds them and tries to leverage them against you. They can also represent your goals, both financial and aspirational, at the negotiation table.
Negotiation teams do everything they can to get you the best deal you can get. They also have specialized skills, such as in valuation, tax reduction, and law, that can protect your interests.
Avoid False Starts Whenever Possible
When pursuing a third-party sale, your first chance is often your best chance. This doesn’t mean you must accept the first offer proposed. What it does mean is that you don’t want to pull your business off the market because you didn’t get an offer you liked.
This is called “tainting the marketplace.” When a business comes off the market without selling, it tells potential buyers that there may be something wrong with the business. This may make future buyers more hesitant to purchase your business.
Fortunately, by installing a next-level management team, creating business continuity plans, and assembling a negotiation team, you reduce the likelihood of tainting the marketplace.
We strive to help business owners identify and prioritize their objectives with respect to their businesses, their employees, and their families. If you have questions on this topic, we can help with more information or a referral to another experienced professional. Please feel free to contact us at your convenience.
Imagine a world where your financial advisor, attorney, accountant, insurance specialist, and property/casualty advisor all worked together, like a board of directors on your behalf. This is the type of Collaborative Advisory Team approach we take in our practice. For many driven entrepreneurs, executives, and high-net-worth individuals, a Collaborative Advisory Team of professionals is the most effective and efficient way to achieve your optimal financial world. At Moneta, we’re reinventing the way you experience wealth management.
The information contained in this article is general in nature and is not legal, tax or financial advice. For information regarding your particular situation, contact an attorney or a tax or financial professional. The information in this newsletter is provided with the understanding that it does not render legal, accounting, tax or financial advice. In specific cases, clients should consult their legal, accounting, tax or financial professional. This article is not intended to give advice or to represent our firm as being qualified to give advice in all areas of professional services. Exit Planning is a discipline that typically requires the collaboration of multiple professional advisors. To the extent that our firm does not have the expertise required on a particular matter, we will always work closely with you to help you gain access to the resources and professional advice that you need.
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