Key Considerations When Selling Your Business

Selling a business is one of the most significant decisions a business owner will ever make—both emotionally and financially. There are many factors to consider, and proper planning can make the difference between a successful transition and a missed opportunity. This article explores the crucial aspects of preparing for and executing a business sale.

The Emotional and Personal Impact - For many business owners, their company is more than just a source of income—it is a part of their identity. Selling a business raises questions about what comes next, both personally and professionally.  Additionally, concerns about employees, clients, and the legacy of the business often weigh heavily on owners. Ensuring that the right buyer is chosen and that there is open communication throughout the process can help alleviate these concerns.

Financial Timing and Valuation - The financial aspect of selling a business is, of course, critical. Timing plays a major role in valuation—selling during a period of strong growth can result in significantly higher multiples. Conversely, if a sale is forced due to necessity, buyers will sense it and may offer lower valuations.
Even if an owner is not currently planning to sell, it is a good idea to periodically test the market and assess the value of the business. Cleaning up ownership structures, resolving outstanding issues with minority partners, and implementing strong systems and processes can enhance valuation.

Preparing for the Sale - To achieve the best outcome, business owners should take steps to make their company more attractive to buyers. Some key considerations include:  

• Structuring Ownership: Ensuring a smooth transaction by simplifying ownership structures and reducing the number of decision-makers.
• Implementing Systems & Processes: Buyers want a business that can operate smoothly without being overly dependent on the owner.
• Assembling the Right Team: An investment banker, attorney, accountant, and financial advisor are essential to navigating the complexities of a sale. Finding a mentor in the industry who has been through the process can also be incredibly valuable.
• Estate Planning & Tax Considerations: Proper planning can help reduce tax liabilities, particularly for those in high-tax states like New York and California. Strategies such as transferring stock to family members before receiving a term sheet can offer significant benefits.
   

Strategic vs. Private Equity Buyers

Understanding the difference between selling to a strategic buyer versus a private equity (PE) firm is crucial. Strategic buyers are typically in the same industry and may integrate the acquired business into their operations, while PE firms aim to create value through operational improvements and cost efficiencies. Both paths have pros and cons, and it is important to evaluate which aligns best with the owner's goals.

Creating a competitive environment among buyers can help maximize the sale price. Investment bankers or legal representatives can assist in generating demand and managing negotiations effectively.

Life After the Sale

Many business owners underestimate the financial returns they can generate from investing their sale proceeds. Understanding expected returns in public and private markets can help owners set realistic expectations and make informed decisions.

Post-sale, owners must shift their mindset—where they once managed a business, they must now manage their wealth. Many find themselves working with a financial advisor for the first time in a significant way. A well-structured investment plan can provide confidence and financial security, allowing owners to fully enjoy the next chapter of their lives.

Final Thoughts

Selling a business is a complex and deeply personal process, but with the right preparation and guidance, it can lead to tremendous financial and personal rewards. Business owners considering a sale—or even just beginning to think about it—should take proactive steps now to ensure they are well-positioned when the time comes.

Schechter Investment Advisors provides guidance throughout the selling process, helping business owners maximize the value of their business and plan for life after the sale. Those interested in learning more are encouraged to reach out for professional assistance.

Disclaimer: This post is for informational purposes only and Schechter is neither a law firm nor an accounting firm. The tax and estate planning information provided is general in nature. It is provided for informational purposes only and should not be construed as legal or tax advice. Clients, and prospective clients should consult an attorney or tax professional regarding their specific legal or tax situation.