By SJS Investment Services Founder & CEO Scott Savage.
Not as excited about “work” these days? Feeling the “whisper of discontent”? Daydreaming (or having nightmares) about the next chapter of your life?
You know it’s time, or getting there. You built a successful enterprise, waking up every day determined to make your company better than the day before. Determined to make yourself a better leader than the day before. The struggle, the competition, the ability to prove yourself - you relished it.
But now something else is arising. You’re thinking of retirement or perhaps a new passion project, an encore career, the life of an expat - and ever so slightly, day by day, the call is growing. You know you can’t ignore it much longer, even if you’re tempted to.
And you are tempted to ignore it because what does a life transition like this mean? It means big change. It means something new you haven’t defined yet - and the letting go of the company you built with your hands.
In my nearly three decades of helping business owners with their finances, I have learned that one of the most difficult decisions for a business owner is deciding if and when to sell their business. Each business owner approaches this decision differently: Some meticulously plan their exits while others don’t plan at all.
Unfortunately, most business owners do not adequately prepare for their exit. In a 2017 study by Nationwide, 3 in 5 small business owners do not have a business succession plan in place.[1] We think that not having an exit plan in place is a mistake, for yourself, your family, and the employees of your business.
If you don’t know whether you want to sell your business or how you would go about selling your business, we recommend starting with the following steps.
Assess Your Options
The first step is deciding how you want to exit. How do you want to pass on your company? Your decision will help shape the course of your plan.
You can:
Transfer it to family members
Design an internal sale to an employee or employees
Sell it to a third party
Weigh The Pros And Cons
Each decision has its pros and cons that you’ll need to consider. For example, if you’d like to sell the company to family members, first make sure you have a family member who wants to take the reins and has the competence to do so (you’d be surprised that many potential heirs apparent don’t). The family member may also lack the ability to finance the price you need, calling for creative solutions if you are set on this path.
But passing a business within a family - and to some extent, to employees - can mean that the values you founded your company on will be honored and live on after. Your company’s community service, its local focus, its commitment to customers - you have less control of the legacy once the company is in the hands of a third party.
This is the time to do some soul searching. How do you envision the company being passed on? What factors are you flexible on? What is non-negotiable for you? Will it still be non-negotiable if it means you receive less money?
Get A Financial Advisor’s Expertise
Consider fleshing out this question of “When and how will I exit?” with an experienced financial advisor. Your advisor can help you understand the financial impacts so you can decide on the exit that leaves you feeling good about your company’s new owners and the financial future for you and your family.
Additional Due Diligence
After considering the above, if you still can’t shake the feeling that some time soon may be the time for you to exit your business, we recommend for you to do additional due diligence, including:
Determine the age at which you want to leave the business.
Assess your financial situation and your desired retirement lifestyle.
Determine the gap between your savings and your desired lifestyle.
Decide how you want to transfer the business.
Get a valuation of your business.
Assess and implement the steps you need to increase your business' value.
Review your financial picture.
Understand the tax impact: Particularly now, Congress is debating a change in tax and estate rules that could have a HUGE impact on the design of your exit.[2]
Conclusion
Determining when to sell a business is a difficult decision for most business owners. To help business owners make better decisions for both themselves and their business, we wrote an ebook entitled Your Business Exit: Monetizing Your Life’s Work. We explore how your situation can come together - the dollars and the cents, as well as the behavioral - so that you can create a successful business exit.
If you have any questions or want to talk through your potential business exit strategy, please feel free to reach out to us. We have helped dozens of business owners successfully exit their businesses, and we would be happy to help you as well.
Important Disclosure Information & Sources:
[1] “Nationwide Survey Finds Majority of Business Owners Don’t Have a Succession Plan”. Nationwide, 07-Feb-2017, prnewswire.com.
[2] “How the Wealthy Are Trying to Anticipate Biden’s Tax Increases“. Paul Sullivan, 06-May-2021, nytimes.com.
Advisory services are provided by SJS Investment Services, a registered investment advisor (RIA) with the SEC. Registration does not imply a certain level of skill or training. SJS Investment Services does not provide legal or tax advice. Please consult your legal or tax professionals for specific advice. This material has been prepared for informational purposes only.
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