For a business founder, their ”investment” in the business is multi-dimensional: financial and emotional. Selling the business isn’t just an event, it’s a journey. So argues the author of this article, an author, advisor and figure in the wealth management industry.

There is a lot of commentary at the moment about business owners selling and transferring what they have built. It is an emotional and challenging process and the field is littered with stories of owners wondering if they had sold a business too cheaply, or that the process was arduous and complicated. Advising such business owners on these transfers is a big growth area in the North American wealth management industry. 

To talk about the topic is David Werdiger, who is an advisor on intergenerational wealth transfer, a succession planner, adjunct professor, speaker and author. This news service is pleased to share these views with readers and invite responses. The usual editorial disclaimers apply. To jump into debate, email tom.burroughes@wealthbriefing.com and jackie.bennion@clearviewpublishing.com 

 
The number of businesses bought and sold hit a record level in 2018 (1). Yet, the majority of business owners fail to prepare for a sale-ready operation, leaving five to six figures on the table for any one transaction. This article gives three key essentials to being prepared and optimizing for a better profit.

Here’s the situation: after 20+ years of hard slog, it’s finally harvest season: you’ve decided to sell the business. You’ve been spending several years getting the business “sale-ready” - the company accounts are in order, you pay family members at their replacement cost, and there are no related-party transactions that can distort the value. You probably also have a succession plan for how you will stage your withdrawal from day-to-day operations, as well as a professionally-prepared information memorandum for prospective buyers.

I call all of this “structural preparation” - making sure that the business is operationally and financially structured so that it will be attractive to a prospective buyer. This is the essential step one to selling your business.

Having done this, you put the business on the market, and a variety of tantalizing offers are coming in. You dream of the pay day and the wonderful feeling of having your years of effort recognised in a quantifiable way. But how well-prepared are you? Here are two other essential steps to make sure that the business sale delivers the outcomes you really want.

Step two: emotional preparation. Starting a business is like having a child. During the gestation period, you are full of hope and expectations, and sometimes experience some birth pangs before the business even gets off the ground. Once born it requires much care, with many sleepless nights wondering how you might make the payroll, and questioning your decisions as you look at how others are doing.

As your “baby” grows, there are many ups and downs, but you are able to maintain your focus on the long term and recognise setbacks as challenges that can be overcome. When the business reaches adulthood, you begin to understand the meaning of the adage “little children little problems; big children big problems”.

Selling that business is like watching your adult children leave home and do their own thing. It can be hard to let go. The house is empty, and you miss the buzz. Without the need to go to work each day, even if it’s just part time, there is a void in your life, akin to feelings of grief. Much of your personal identity may have been bound up with the business, and now a part of you is gone.

Being emotionally ready to sell your business includes: shifting your relationship with the business to create some emotional distance for when it’s no longer a part of your life, and having a clear plan for what you plan to do next (retirement or otherwise), so your business sale journey is “to” something rather than “from” something.
 

Step three: financial preparation. “I’ll get the check and then I’ll work out what to do with it” is a common attitude from business owners. That moment when the money is in the bank is the goal many business owners seek, but it’s actually the start of the next part of your life. Just like you spent time developing your business idea before launching it, you need to spend time preparing for how your financial position will look after that liquidity event.

Going from having a significant proportion of your wealth tied up in a single operating asset to liquidity is a huge shift. Some business owners experience a shift in their appetite for risk after an asset sale. Some find investment decision-making a challenge and can be overwhelmed by the choice, like looking for breakfast cereal in a supermarket. Importantly, the returns being delivered by your operating business may have been far higher than what can be achieved passively investing the sale proceeds.

Being financially prepared means having a reasonable picture of what you intend to do with the sale proceeds. I recommend that people consider their long-term goals (mine is 40 years) and prepare a matching financial plan, so that they can be satisfied that the business sale will allow them to achieve their goals. Having such a plan in place before you even start the sale process is important because it can help drive decisions relating to the business sale terms, such as earn-outs or a partial/staged divestment.

For one of my businesses, the journey of preparation started with a health challenge and a reassessment of my life goals. From there, the three stages of emotional, structural and financial preparation ran in parallel for several years. Having the business in that sale-ready state has given me the emotional space and freedom to pursue new goals and transform my life.

For a business founder, their ”investment” in the business is multi-dimensional: financial and emotional. Selling the business isn’t just an event, it’s a journey. To navigate that journey so that it leads to more than just cash in the bank, ensure that you consider all three steps toward true sale-readiness.

Reference:
https://smallbiztrends.com/2019/01/bizbuysell-annual-2018-insight-report.html

About the author
David Werdiger is #1 best-selling author of Transition; How to Prepare Your Family and Business for the Greatest Wealth Transfer in History and Founder of the Nathanson Pearson Family Office in Melbourne Victoria Australia.