The crisp winter air is stinging outside. The cacophonous clang of silverware and plates fills Richard’s ears. He sniffs deeply. The thick aroma of dark, black coffee is hanging in the air.
Richard and Jon are sitting in a diner, across from each other, enjoying a cup of coffee and a hearty breakfast. Richard’s hair is now a pure white. He gave up on the hair dye years ago.
Jon is now marked with all the vestiges of middle-age and has surely grown over the years. He’s slowed down some, thank goodness, and Richard couldn’t have asked for a more sound and thoughtful business partner.
Jon was there through the best of times and the worst of times. He knows how to handle this business.
Jon is pinning down the eggs that keeps sliding in syrup that oozed from his waffle and isn’t even noticing Richard staring at him.
Richard twiddles his thumbs nervously. Jon is like another child to him, part of his family. He’s been waiting for this moment. He opens his mouth and asks tenderly,
“Jon, are you ready?”
“Ready for what, Richard?” Jon manages through a full bite.
“Ready to take over. I am retiring at the end of the year.” Richard speaks softly.
This time, Jon’s jaw drops open and CLANG, he drops his fork right with it…
Maybe you are a successful business owner like Richard, creating a flourishing and profitable business and navigating through many turbulent waters. The years have treated you well. Your employees enjoy working for you and you have more customers than you could have ever imagined.
However, now you see the light at the end of the tunnel. The years of long hours and hard work have worn you down.
Or perhaps you are hungering for a new challenge and need to take a couple of years off. At home, your spouse desires more of your attention and wants to travel.
You started looking within your company, but pretty quickly it becomes obvious that you have no apparent successors that have the mental agility or the financial ability to take over the helm and buy your business. You take a deep breath and finally decide that it is time to look at succession planning and possibly even to sell your business.
You have a host of questions.
- Who do I turn to?
- What sorts of sellers are there?
- What are typical provisions and pitfalls should I be aware of?
- What will my taxes be?
- What will I do after I sell my business?
If you answered yes to any of those, this post is for you.
Here are some of the areas we will cover in this series:
- The Current Marketplace and Making the Decision to Sell versus Keep
- Comparing and Contrasting Types of Buyers
- How to Find Buyers
- How to Value Your Company
- Hints for Attracting and Closing a Buyer
- Closing the Deal
- Now What? After you’ve sold your business
The Current Marketplace and Making the Decision to Sell versus Keep
First, let’s explore the overall territory of small businesses and the current environment. Why should you sell your business?
In the book Keep or Sell Your Business by Mike Cohn,he says statistics show that in the last 30 years, the sales of both private and public businesses was worth more than $1 million or three times the total number of deals for the 70s and 80s combined. The marketplace continues to consolidate as companies merge and acquire. So there is plenty of opportunity in almost any business to find a willing buyer.
Due to the increase in activity, the marketplace has become much more competitive for buyers and premiums have increased.
In addition to looking at the attractive marketplace, perhaps of greatest motivation to many small business owners is the lack of succession planning. Many have not taken the time to examine the next step for their business.
This is understandable.
Everyday life is incredibly busy. Many owners are being pushed and pulled by forces not limited to family, employees, friends, business partners, and their charitable allegiances. The question that often does not get answered – who is going to take the reins after you retire?
While you dwell on these thoughts and let them tumble in your head, perhaps you are really having a tough time deciding to sell your business. You think you are better off working a few more years and keeping the business with the hope of finding a successor or business partner rather than an outright sale.
Let’s compare and contrast the reasons for keeping the business versus selling the business.
There are several admirable reasons to consider keeping the business:
- Maintaining relationships you have built over a lifetime
- Being able to maintain your privacy without releasing confidential information
- Building a legacy for your children to possibly take over the business
- Maintaining your income and current savings plan
- Being able to run the business without anyone looking over your shoulder
- Having a consistent schedule and environment that you have built.
On the other hand, there are many motivations if you decide to sell your business. For example, you have an opportunity to meet and explore partnerships or outright sales with qualified buyers.
You could have time to rest and revitalize yourself to move past your exhaustion and lethargy.
Perhaps you want an on-going cash flow from the sale of the business that will allow you to be financially prosperous. This could allow you to retire or even work part-time to avoid the long honey-do list at home.
You may also want to sell to take advantage of the current tax environment which has a low long-term capital gains rate. Perhaps you just simply don’t have a successor and you are ready to hand over the reins to someone else.
So now, after a long discussion with your spouse and your team of mentors, you have made up your mind and decided that you want to sell your business. So, where do you start?
In the next installment of our series on Selling Your Business, we will help you determine where to start by discussing how to value your business and how to find the right buyers. Keep a lookout for more coming soon!
Material discussed is meant to provide general information and it is not to be construed as specific investment, tax, or legal advice. Individual needs vary & require consideration of your unique objectives & financial situation. Please consult with your accountant or tax advisor for specific guidance.