As millions of business owners near retirement, some are dealing with the daunting challenge of deciding when, and how, to successfully sell their, potentially, largest single asset — their business.
According to a recent Exit Planning Institute survey, some 4.5 million companies, representing $10 trillion in market value, will transition over the next decade. Of those 4.5 million, surprisingly, 53% also stated they have given minimal attention to determining an effective exit plan.
Edward Valaitis’ book, Exit Like a Winner, has achieved the No. 1 Amazon New Release status in the categories of mergers and acquisitions, private equity and corporate law.
Here’s an excerpt from the book:
Selling a Business in Today’s World
The reality is that there’s a point in the lifespan of every business when it becomes too late, reasonably, to sell. When you started your company, it was impossible to have a realistic valuation—after all, goals and projections can’t be measured until time proves the worth of a company. If you’re at a point where you’re thinking of selling your business, most likely, you’ve been able to build and sustain a profitable business consistently for many years. That growth may have slowed since, but you’ve very likely brought your business to a point, operationally, where you’ve tried to maximize every department’s capacity, scrutinized every [profit and loss], developed your team into the best managers they could be in their respective positions and found yourself fairly satisfied with the results—and you held on.
After a time of growth (this can be anywhere from a few years to a few decades), there will often be a decline. As a specialist, I can tell you that this is inevitable. Whether it’s an economic shift or a technological trend that comes out of nowhere to challenge your standing in the marketplace, you will see some attrition over time. Whether the result of this attrition included having staff who are a bit less capable, or any number of hundreds of other factors that might come to affect your bottom line over time, the reality is that under every leadership mantle, that revenue curve is going to dip below peak performance and descend. If you haven’t thought of selling and moving on by that point, then time is of the essence. Do not wait.
Once your business has spent some time in slow—or rapid—decline, you might still be enjoying the cash flow your business produces but the value of your business entity is also sifting away like sand through an hourglass. I’ve seen it all too often. I sit in the offices of perplexed business owners while they wring their hands, asking me if they should sell, try to merge or recommit to turning their business around. Some of the lucky few have the option of considering an employee stock ownership plan. But some, after showing a significant loss for many years in a row, come to the heart-wrenching decision to shut down. Now, thankfully, that doesn’t have to be you. With guidance from a mergers and acquisitions adviser, and maybe other professionals who understand how to maximize business value as the time approaches to sell your company, you have options.
The Stages of Selling
There are things that need to be settled early on. Based on some very real conversations that I’ve had with business owners in my office, here are a few stages I see in this process:
The client is still waffling between selling and staying on. They know what it took to build their business and they’re unsure of whether it’s time to let go of the reins. They don’t know who they can trust for advice so they decide not to trust anyone and postpone making any decisions at all. They stubbornly refuse to admit that, perhaps, hanging on to the business could result in lower future market value for their business and, ultimately, dramatically decrease the odds of successfully selling their business.
They are frustrated that their bodies are getting older and they lack the energy, or health, to power through 14-hour days. They blame the current staff for any slump in business. They just don’t want to roll out of the bed and deal with 101 problems and crises ranging from irate customers to shoddy work from an employee. They’re angry that their dream of retiring with a multimillion-dollar nest egg is looking bleaker with each passing year.
They’ve had too many letters, and some offers, for their business in the past and believe that, surely, those offers indicate that the business will still be desirable and marketable once they’re ready to sell. They argue that they’re smart—even tough—negotiators so, surely, they can handle a business sale transaction. After all, they consider themselves a self-made success story. They’re convinced that saving that commission would make a lower valuation hurt less. They figure that if they can sell quickly enough, then they can avoid having their current lousy year included in the valuation. They lament that the most recent offer they received wasn’t fair and didn’t take into account broader market factors, customer potential or current plans to resolve management challenges. They reason that they’ll sell once they close that next whale of a customer, the one they’ve had in their pipeline for three years now.
Their emotions overwhelm them as they consider what their family has asked of them and what their retirement needs are. They feel as though their legacy is disappearing, and that reminds them of how much closer they are to the last quarter of life than the first quarter. The painful decision they have before them may evoke past regrets as emotions pour out. They express, readily, how painful the process is but, knowing their business has its flaws, they struggle to take on the challenge of moving forward with the sale.
This business owner knows in their heart that it’s time. The mantle must be passed. They are responsible for making good decisions that will allow them to harvest as much wealth as possible to have financial security, quality of life and take care of their family and legacy. They understand that it could take some time to sell but they don’t really have a clear idea what it will take. They recognize that their identity might be wrapped up in their business and that it shouldn’t be. They come to terms with who they are and will be after they retire. They realize that now is the time to figure out who that person is. They finally come to understand that they are at the precipice of the biggest transition of their life and it’s vital that they get it right—not just for themselves, but for their spouse and children. So, do you see something interesting about these stages? They are the five stages of grief. The hardest thing for a business owner to face is that, perhaps, their season of business ownership is coming to a close. For many, it’s a time of mourning. They not only feel as though they’re losing a companion, or a child, but they also feel they are losing their identity. It’s not easy. It’s definitely emotional. Most will not admit it until that last drive to the office, knowing that the last chapter is closing. ♦
You can find Exit Like a Winner on Amazon and at Barnes and Noble.