To Sell or not to Sell
Starting a business can be just as daunting and nerve-wracking as starting a family. A tremendous level of preparation, care, and dedication is required for lasting success in both contexts. Every business that is built from the ground up faces challenges, not unlike nurturing and raising a child. This is why the question of whether or not to sell the business can be such a daunting one for business owners.
“Business ownership is synonymous with identity for so many business owners,” says Ryan Mackiewich, WealthCo’s Senior Planner. “For many, there is no separation between themselves and the business. It can be very difficult to consider selling as they can’t see themselves disconnected from the business and have a hard time letting it go.”
However, sometimes the signs are there that it might be time to sell, including:
A willingness and readiness on the part of key employees or the next generation to step up and take over.
An inability or lack of desire to stay on top of new technologies, processes, and methodologies.
When someone else sees more value in the business than you do.
Disengagement—if an owner no longer has the passion for the business they started, it may be time to consider selling.
There is a lot to consider before taking that step.
Is There an Optimal Time to Sell Your Business?
“The best time to sell any business is when it is worth the most to someone else,” Mackiewich advises. “This can be very hard to evaluate and even more difficult to time. Instead of trying to time the sale perfectly, make sure to get yourself and your business ready so that when the best suitor comes along, you are ready to take action and cash in on the value of your life’s work.”
To optimize the success of selling your business, follow these basic steps:
Get your paperwork in order: Ensure financial statements, tax filings, and legal compliance are up to date before proceeding with any potential sale.
Evaluate and document the value of your business: This could include an audit of financial statements or a valuation report, along with other documents that reflect potential strengths and weaknesses.
Form a support team: This team should include advisers such as your accountant, possibly an attorney, and a business broker who can help identify buyers and pricing strategies to ensure you get the best deal possible.
Complete necessary non-disclosure agreements: Do this before beginning conversations with potential buyers.
Demonstrate the value beyond the current owner: Develop and document good processes and have a strong team in place to run the business, ensuring the value of the business is distinct from that of the current owner.
Key Questions to Ask Before the Sale
Before making any major life decision, it’s essential to ask the right questions. Here are the key questions Mackiewich advises asking ahead of selling your business:
What am I going to do if I’m not running this business?
Travel, spending time with family, and hobbies are attractive distractions for a short while. However, many successful entrepreneurs have a burning desire to create and contribute in a meaningful way beyond family and friends. Consider how you will continue to contribute and add value to the world after selling your company.
Do I understand what I will lose?
Senior executive roles often come with many perks such as company cars, golf club memberships, administrative support, and travel allowances. Stepping into a world without these perks can be challenging. Take some time to account for what will change when you’re no longer CEO.
Is my business ready for sale?
Do you have your processes, policies, and procedures well documented? Are the right people in place for the right jobs? Are your books clean, taxes filed and paid, and records up to date? Can someone else seamlessly take over?
Are there any unaddressed issues that could jeopardize the sale?
These may include disgruntled employees, unhappy customers, or even an old inappropriate social media post. Address anything that could undermine the sale or diminish the value of the business.
Do I have the right team in place to help me sell and get the most for the business?
Many business owners don’t know where to start and often turn to their accountant or a real estate agent for help. These team members are important, but consider that the team running the business may not be equipped to handle the transition to a new owner. Other professionals such as coaches, bankers, lawyers, and business advisors may also be worth considering, depending on where you are in the sales cycle.
When Selling Is Not the Answer
On the flip side, maybe the time isn’t right to sell your business.
“If you simply cannot foresee what you will do after you sell the business, then maybe it’s not the time to sell,” Mackiewich cautions. “Additionally, if you have a clear succession plan in mind that is agreed upon by both the incumbent and the successor, then an outright sale may not be advisable.”
If you start the sales process and think your business is worth more than what purchasers are offering, it may be time to sharpen your pencil and figure out alternative strategies or what needs to change to improve the value and saleability of your business.
Whether you choose to sell or not, your accountant should be with you every step of the way. They can ensure your books are in order, assist with tax and business valuation estimates, and serve as a sounding board. They know you and your business well and can be a valuable advisor.
A member of the Integrated Advisory Community, Ryan Mackiewich, CPA, CA, FEA, is a Senior Planner with WealthCo. With over 25 years of experience providing tax and business advisory expertise, Ryan holds the Family Enterprise Advisor (FEA) designation and works with business families to help them transition business, wealth, and roles effectively. When he’s not doing that, Ryan loves to camp, hike, and explore all the wonderful places the world has to offer.
The Integrated Advisory community consists of a network of progressive CPA firms, along with best-in-class professional advisors, service, and product specialists, who work together to deliver an elevated and holistic client experience. One that optimizes both their personal and professional lives with an integrated financial strategy designed to help clients reach their goals.