Key Considerations Before Selling a Business
As a business owner focused on the day-to-day responsibilities of running a company, it can be difficult to imagine life without your business. It’s not just your time that’s wrapped up in the business, but your identity, which is why many owners joke that the only way they’ll exit their business is “feet first.” But what if circumstances or your priorities change and you’re unable to work as long as intended due to an illness or injury? Or what if you’re ready to sell but the value of the business is not enough to support your lifestyle in retirement? That’s where business exit planning can play a critical role.
Exit planning can help you prepare for both expected and unexpected events as you seek to drive business value and position yourself to meet the next phase of your life on your terms. When exit planning is treated as a business strategy it can help create the conditions that will place you and your business in the best possible state to transition.
Are you mentally and emotionally prepared?
When developing a strategy, one of the first considerations is how you plan to exit your business. Will you leave outright or remain involved in a less prominent role? Will the business remain in the family, be bought out by one or more partners, sold to a third party, or another arrangement? How will you spend your newfound time? Think about what gives your life purpose and meaning outside of your business, as well as the legacy you will leave.
Can you afford your post-business lifestyle?
The next step is determining if you’re financially prepared. Since the net worth of most owners is closely tied to their best-performing asset—the business—it’s important to diversify your wealth and risk outside of it. That begins with understanding your cost of living without your business. For example, certain perks and benefits you can write off today, such as a company car, golf club membership, or employer-based health insurance, can be costly once you’re paying for those expenses yourself.
The less you accumulate outside of the business, the more you will rely on the value of the business at the time of sale to support your goals for the remainder of your life. For example, if you need $20 million in investable assets to live the life you want, but you’ve only accumulated $6 million in non-business investments, your business has to sell for a net of $14 million to avoid a wealth gap. If you haven’t taken steps over the years to maximize business value, and it’s only worth $10 million when you’re ready to sell, you’ll fall short of your goal.
Keep in mind that focusing on your personal planning needs well in advance of a sale may improve your ability to position the business to support your financial goals.That’s because it can take years to improve the various areas that influence business value and improve your multiples, such as EBITDA (earnings before interest, taxes, depreciation, and amortization), human capital, social capital, structure capital, customer capital, and a business that is not centralized around the owner.
You don’t want to wait to create tangible business value until you’re ready to sell or exit the business—or worse—are forced to leave due to a health condition or other event. The earlier you determine your financial requirements for the sale, the more likely you will be able to take the steps that will allow you to comfortably transition out of the business on your timeline with the money you need to support the next phase of your life. Remember, everything from your lifestyle, legacy, outside interests, long-term care preferences, and the charities you support need to be funded.
How can you get started?
Exit planning ensures you have a game plan in place to help determine when you’re ready to walk away, what your next steps will be, and how your legacy will play out. It’s also a critical tool for driving the types of continuous improvements that lead to maximizing business value over time. And when it comes to planning for your future, time is your greatest ally.
The sooner you begin to identify your goals and aspirations, the sooner you can start taking concrete steps toward accomplishing them. Having time on your side also allows you to make better decisions and thoughtful adjustments along the way as challenges present themselves or your priorities change.
A Certified Exit Planning Advisor (CEPA) will not only help you identify your goals but create a path to help pursue them as part of a team of experienced legal, accounting, and wealth management professionals. A CEPA can help coordinate the planning process by addressing your big picture from a holistic perspective, asking the right questions, facilitating communication with your team of advisors, and implementing strategies and advice that can help you maximize the value of your business and personal assets.
To learn more about how a Certified Exit Planning Advisor can help you pursue the full range of your business and personal goals, listen to our latest podcast episode of Frank Wealth Insights. To learn how your team of independent wealth planning professionals at Return on Life® Wealth Partners can help you and your family pursue the Return on Life® you desire, contact us today for a complimentary, no-obligation consultation.
About Return on Life® Wealth Partners
Return on Life Wealth Partners is an independent Registered Investment Advisor (RIA) founded in 1994, with headquarters in Cleveland. The team provides comprehensive wealth planning services to individuals, families, and business owners. By examining clients’ lives before their money, Return on Life® aligns its advice with clients’ values. This personalized approach also extends to the institutional and corporate retirement plan services available through 401(k) Prosperity®.
Important information
The information provided in this document is for informational purposes only and should not be construed as investment, tax, or legal advice. While we strive to provide accurate and up-to-date information, there are no guarantees that the strategies discussed will achieve the intended outcomes. Individual results may vary depending on factors such as market conditions and personal circumstances.
There is no assurance that any financial planning or exit planning strategy will be successful. Investing involves risk, including the potential loss of principal. Business valuations and sale outcomes may be influenced by various external factors and may not reflect the business owner’s expectations.
Tax laws and regulations are subject to change, and strategies outlined may not be suitable for all individuals or entities. Consult with a qualified tax professional regarding your specific tax situation.
Investment advisory services offered through Planned Financial Services, LLC, dba Return on Life Wealth Partners, an SEC-Registered Investment Adviser and separate entity from LPL Financial.
For additional information related to our services, please visit https://adviserinfo.sec.gov/firm/summary/112879
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