You may know what business succession planning is but do you know why it’s important?
It’s January 5th and I get a call from a client who wants to sell their business. They had a great holiday break and decided they no longer want to run their business. They do not want to deal with the headaches, stress, and people issues that accompany being a business owner. As their business advisor, I make the following statements and ask a few important questions:
- Have you met with your financial planner to see if you have enough to retire?
- Do you know what your business is worth?
- Your business had a really bad year 2 years ago. Remember, almost all buyers will look back 3 years. This will hurt the value in the sale.
- Does your executive team know?
- Have you thought about incentivizing them to stay with the buyer?
- What are you going to do next?
- Most buyers of businesses your size, will use a loan to buy the business, and will require you to be out of the business in less than a year.
The list continues during the next few discussions with the client. It’s clear they have not thought of any of these, however they want to sell anyway. During the process, the valuation is lowered by the bad year they had, and a few members of the management team leave as they hear of the sale. The transaction closes after months of trying to sell and going through due diligence with a couple different buyers.
This scenario happens every year. Business succession plans help make sure that if you wake up on January 5 and decide to sell, you have the opportunity to easily answer these questions and many more. Having a plan in place will help you maximize the exit value when the times comes, and also make the process of selling or transitioning much easier for the business.
Contact us for a no-cost consultation to find out if your business is ready to be sold.