When was the last time you sold a business? If you’re like most people, probably never. It is not a common transaction like buying a home or a vehicle. So, you can’t poll your friends for their insight because they probably haven’t done it. You might not want to discuss it with your business peers either because of your concerns about confidentiality.
It’s a big unknown for most business owners. Add to that all the common emotions that come along with this decision, and it quickly can seem overwhelming.
All business owners sell their business eventually. It’s normal to not know what to expect. So, we’re going to walk you through what it’s like and the mix of emotions and issues that often accompany it.
To help put the who process in context, we’re going to introduce you to Steve, a fictional business owner who thinks he might be ready to sell his business.
Steve is a 63-year-old baby boomer who has owned his manufacturing company for 30 years and has grown it to $2M in annual sales. He’s married with 3 adult children, 1 of which is active in the business. He recently transitioned about half of the business operations to his General Manager which lets him spend 3 weeks in Arizona every winter. His wife is retiring from her job this year, so he’s ready to make that 3 months in Arizona.
Steve has been contemplating selling his business for the past 18 months, since his wife decided she was ready to retire. Even with the increased role of his General Manager, he still doesn’t have a lot of time to think through a detailed exit strategy. From a financial perspective, Steve knows what he needs to get out of his business in order to enjoy a comfortable retirement. There is some anxiety over their retirement planning because he’s not really sure what his business is worth, and that number has a big impact on their goals. To further complicate matters, he’s wondering whether he should consider letting his son take over the business. Letting go will not be easy, but perhaps this route might be a worthwhile compromise.
Even though he’s not ready to be too public about his intentions, he has talked to his wife as well as his accountant and a realtor that he trusts. All agreed that he needs to start planning soon but that they’re not the right ones to walk him through this. Their suggestion was to start with an experienced business broker so he can understand the next steps and what his business is worth.
Taking the first step without committing anything
There are a lot of misconceptions about selling a business. One of the biggest is that once you sit down with a business broker, you’re committed to working with them, and a lengthy list of fees follows shortly behind. The truth is, a reputable broker will probably kick things off with a quick (but confidential) chat about your situation and needs.
It wasn’t easy for Steve to make that first call, but he did. When we talked to him, we assured him that his conversations were confidential and that a broker’s job is to understand his needs. Steve’s biggest concern was about the value of his business and keeping everything confidential.
“Will I be able to sell my business for enough to meet our retirement goals?”
His family was also top of mind in the first call.
“Is it easier to just give the business to my son or will that put too much pressure on him? How fair is that for my other children?” Steve and his wife have talked about how important it is to ensure their son and their other employees can stay employed at the company if they want to.
Steve was relieved to hear that the next step, while a bit more involved, isn’t overwhelming. He’ll need to share more information about his business, but it will be a first step in building a plan for success. It’s reassuring to Steve to know he’s got someone else he can work with on this. He’s like a lot of owners who feel a bit isolated in the decision making because they’re keeping things confidential.
Steve’s also excited about seeing the next steps unfold and getting a better understanding of the value of his business. It’ll make things clearer for those important retirement decisions.
The next step is to start building a customized work plan so you can successfully sell your business. Your broker will review your situation and go through the finer details of your business.
These conversations should always be confidential and informal and should take place wherever you are comfortable openly having that conversation. Do not feel like you’re committing to work with the broker, you’re just getting the ball rolling. It’s a good idea to bring your latest year of financial statements so the conversations about business value start on a solid footing. And most importantly, come with an understanding of what it is you want from the sale of your business.
Steve is ultra-sensitive about people finding out that he is considering selling his business, so he asks to meet at a random coffee shop in an effort to keep it confidential. We covered a lot of ground with Steve including conversations about the overall state of the market and whether he’s chosen a good time to sell. He shared with us that he’s ready to retire and that his wife and family want him to spend less time working and more time enjoying life. We also talked about other important outcomes and whether he wants any ongoing involvement in the business.
Steve had a rough idea of what he thought his business was worth and he shared that with us along with how he’d come up with that number. Part of the discussion was around the market value of the assets the business owned and the high-level financial details of the company.
At the end of the meeting, Steve was able to walk away with a few things:
A complimentary valuation which is a high-level estimated value range based on the information he shared and our industry experience
A complete summary of the process and fees that Bridgepoint uses to help people like Steve sell their business. Everything is transparent from the beginning so Steve can make an informed choice.
A customized work plan that will set Steve up for success.
Steve walks away feeling good about the conversation and confident that he has the tools to help him navigate and make decisions. He’s more informed about what he faces over the coming months and has someone in his corner with the right experience. And, most importantly, some of the “fear of the unknown” is lifted now that he has a professional preliminary estimate of the value. He’s excited about updating his wife and family so they know he’s got the ball rolling.
This is an important stage for business owners. As hard as it can be to make the first call, you haven’t committed to anything yet. Everything to this point should be free (or come with very little cost), and you should have some action items that will be important to the next phase.
How owners approach the next steps can be drastically different. At this point some owners choose to continue building their company because they have unfinished business to tend to before embarking on an external sale. For some, they wish to further explore the sale option and continue taking small steps in that direction.
We’re publishing a second part to this article. Watch for it in the coming weeks or sign up for our newsletter so you get notified when it’s published. Or, if you think you’re ready to take the steps to get to this stage, give us a confidential call.