Posted on: August 1st, 2017
Do you think about selling your business someday? If you’re like most entrepreneurs, the answer is a resounding “yes!” But do you know what you need to do to walk away from a sale happy, with the maximum amount of money in your wallet?
If you’re like most business owners, the answer is a resounding “no!”
Here’s what you need to know to get the big results you want, need and deserve when the day comes to sell.
Nearly nine out of ten business owners say they’re interested in selling their companies. (see Exhibit 5). Their reasons vary, but selling is a key focus for both new and established entrepreneurs.
That doesn’t necessarily mean these business owners are planning to sell in the near future or that they even have a specific buyer in mind. But it does suggest the idea of selling is a serious consideration—one that should be fully explored by most of you.
But among those entrepreneurs who also tracked the sales activities of other business owners to better understand the process and evaluate the results, the overarching impression is that the sellers weren’t thrilled with their outcomes (see Exhibit 6):
These results match up with other research on business owners selling their companies, and with our own experiences and those of other professionals in the field.
Upshot: Without question, many business owners are ultimately unhappy with the results from the sale of their companies.
The obvious question to ask: What is going on?
For answers, it’s important to realize that post-sale satisfaction levels can be influenced by a variety of factors—some of which may not be financial in nature or within the seller’s control (the timeliness and transparency of the process, how well or realistically the expectations were set in advance, the expertise and professionalism of the advisors, interactions with the new owners, etc.).
That is why it’s essential for all business owners to understand where and how they can have the greatest impact on the future value of their business—and their own personal wealth.
If you’re going to sell your business, you’re probably looking to make sure you derive the greatest financial benefit possible. Getting the most for a company at a sale is typically a key goal of business owners.
Trouble is, while this singular objective is pervasive and can be all-consuming, it tends to be a little shortsighted.
To get the best personal financial results from the sale of your business, smart pre-sale planning is essential. When business owners combine smart pre-sale planning with astute negotiation, they typically secure the best price for their companies and maximize the amount they walk away with in their wallets.
There are two types of pre-sale planning that can be significantly beneficial to business owners: corporate preparation and advanced planning.
First, corporate preparation involves all the activities of organizing a company for a sale. It includes efforts that will address any lingering operational or procedural problems that can impact profits, making sure that a proper infrastructure is in place, along with the appropriate documentation, among other things.
Corporate preparation can help increase the price business owners receive for their companies and can include a broad array of possible activities. Some of the most common and impactful are:
Despite the variety of actions business owners can take to prepare their companies to command the best price, very few have taken any of these steps to strengthen and secure their financial future (see Exhibit 7).
Valuation is another element of corporate preparation. In most cases, a formal valuation is required for the ownership transfer of a business, regardless of whether the transition occurs between family members, within the current employee base, or to an outside individual or corporate entity. There are usually three approaches used to value a company:
One or more of these approaches may be used in the formal valuation process. A qualified appraiser will determine which method is most appropriate based on the nature of your business and its assets, among other considerations. In addition to providing you with a baseline understanding of your company’s perceived and expected value in the marketplace, the process of obtaining a formal valuation can often help you identify other ways to bolster value—and, ultimately, the price a buyer is willing to pay.
IMPORTANT: Corporate preparation helps companies function better and appeals to potential suitors. But it is the ability to capitalize on these improvements during negotiations that translates into a higher sales price. The sales price itself, along with the accompanying terms and conditions, primarily accounts for the amount of personal wealth created.
The second type of pre-sale planning is advanced planning.Planning to make the company more attractive to prospective buyers is wise, but so is planning to ensure you get the greatest advantage on the back end. This is where advanced planning comes into play.
Advanced planning can be extremely powerful in mitigating the taxes owed on the sale of your company. However, of the business owners interested in a possible sale of their company, only about 15 percent have taken action to maximize their personal wealth or the wealth of their loved ones from a sale (see Exhibit 8).
Timing is everything: You must act well before the sale to get the most benefit from some advanced planning strategies, such as freezing the value of a business for estate planning purposes. Conversely, there are other advanced planning strategies that can be quite useful when done close to the transaction. Example: using a charitable trust during the sale of all or part of the company.
Selling your company is one of the most significant business decisions you’re likely to make. Because it will probably have an enormous impact on your personal life and financial life, it’s crucial that you take all the right actions to get the best possible outcome—and join that select group of business owners who were highly satisfied with the result of the sale of their firms.
Contact your legal or financial professional for assistance.
This report was prepared by, and is reprinted with permission from, VFO Inner Circle. AES Nation, LLC is the creator and publisher of VFO Inner Circle reports.
Disclosure: The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra IS or Kestra AS. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by Kestra IS or Kestra AS for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS.
Fusion Wealth Management is not affiliated with Kestra IS or Kestra AS. https://www.kestrafinancial.com/disclosures
VFO Inner Circle Special Report
By Russ Alan Prince and John J. Bowen Jr.
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