Ryan Halleran, Senior Vice President, Director of Wealth Planning
There is no way of predicting when or where the thought will cross your mind, nor the impetus for the spark that caused it to do so, but at some point, every business owner will inevitably wonder what a sale of their business would look like. Whether that business is the product of one’s entire life’s work, or a funny story told at parties as to how one “fell into” their respective line of work, the decision to engage in a sale of this important asset should not be taken lightly. Here are five important questions that any business owner should ask him or herself, prior to heading down the path of an eventual liquidity event.
1. Am I mentally and emotionally ready to embark on this journey?
The sale of a company will often take a year or longer to complete. This can become taxing both mentally and emotionally. Making sure that you are doing so for the right reasons, and not simply because you “want to be done,” is important to keep in mind. All aspects of the company will be under the microscope and scrutinized by any potential buyers, so it is critical you be prepared to discuss and answer questions without feeling as if your decisions are being insulted. Too many deals fall through because egos are not checked at the door.
2. Is my company ready to embark on this journey?
Just as important as being personally prepared, is making sure that the company itself is in a good place before the decision is made to move forward. Often times, this involves reviewing the financial statements, structural documents/filings for the company, as well as employee, vendor or client contracts. There is no worse feeling than standing near the end of the road and realizing that the company’s Operating Agreement still lists that ex-spouse from 10 years ago as a 25% co-owner. This question should naturally lead into…
3. Do I have the right team to help me with this?
So you’ve determined that both you and the company are ready to proceed. Great! But what about your attorney, your accountant or your financial professional? Just because your spouse’s brother has been your accountant and filed your taxes for you for the past 20 years, doesn’t mean he is familiar with or prepared to handle the complexities that come with the sale of a major asset like your company. This doesn’t mean you have to fire any of your trusted advisors; it just means it might be time to bring in a consultant or “second set of eyes” to ensure that all of the i’s are dotted and t’s are crossed. This can be one of the most difficult steps for business owners because it can mean added expenses, but is a good investment to make. Selling your business might be the single most important financial event you and/or your family ever experience. Isn’t it worth the extra cost to make sure you do it right the first (and likely only) time?
4. What are my expectations for this process?
Another common mistake that business owners make is not ensuring they fully understand their own expectations. This can be in the form of the time it takes to complete the sale from start to finish; the cost of the entire process, including fees on the backend when the deal is completed; and the total take-home benefit to you, the owner, when it is all said and done. This is why it is important to have many discussions with the advisors in question #3, to fully understand what is reasonable to expect. Will I have to continue to work for the company after the sale? Will I receive all of the sale proceeds when the deal is done, or will anything be temporarily withheld? How much do I actually need from the sale of my company to ensure my family and I will live comfortably when this is all over? These are all additional questions that your trusted advisors should help you solidify well in advance of engaging the sale process. This leads us to the final question:
5. What does “Life After Sale” look like?
Another very common mistake business owners make is not anticipating what to expect AFTER the sale of their company. You might not have to be in the office or on the job site at the crack of dawn anymore! When your computer breaks down, who is going to help you fix it? It probably won’t be “Jake from IT.” Most importantly, where will the income to support your lifestyle come from, now that you don’t have the luxury of paying yourself from company distributions? The best advice that anyone considering this monumental event can provide is to “have a good financial plan in place for after the sale is done.” It can be too easy to begin spending the proceeds on meaningless items when every day is now a Friday. Speak with your trusted advisors and make sure they know what your objectives and goals are post-sale, so that they can help keep you accountable to yourself and what you want to achieve with your newfound wealth.
The information in this publication is not investment or securities advice and does not constitute an offer. Neither the information nor any opinion in the publication constitutes a solicitation or offer by D.A. Davidson or its affiliates to buy or sell any securities, options, or other financial instruments or provide any investment advice or service. Copyright D.A. Davidson & Co., 2021. All rights reserved. Member SIPC.