EXIT! Hits the Amazon Business Bestseller List!
(next to Donald Trump!)
(next to Donald Trump!)
“Read it once to set a plan in motion. Read it again to follow the road map to closing! Congratulations on a well written and easy to understand guide for entrepreneurs.”
-Marsha Firestone, PhD, President & Founder, Women Presidents’ Organization
“Julie has used her inside knowledge as a business broker to simplify a very complex process. This is a must read for every business owner, regardless of their selling timeline.”
-Mike Handelsman, Group General Manager, BizBuySell.com & BizQuest.com
Here's a sneak peek of Step One of the EXIT! Book...
INTRODUCTION
Most people can’t or won’t think about how or when they will exit from their business unless they are force to. They know this will be one of the most significant events in their life that will impact them, their family, partners, employees and possibly their community. The continuous postponement of planning the exit from one’s business is a serious mistake.
Failing to proactively plan your exit means you run the risk you will be forced to sell your company because of unexpected health, personal or family events, poor economic conditions, poor management decisions, fraud, bankruptcy and other disastrous business ending events. Selling a business under duress is never a happy event. It also may mean the people the most important to you will have to tackle and manage this process because you can’t.
Here is the good news! In this book, Julie Gordon White does an amazing job of demystifying and simplifying the process of how to exit from your business. She clearly explains the 12 steps you must take to sell your business for the price you want and deserve. This is a comprehensive “how to” manual that covers the entire process, step by step.
The author immediately answers the questions most sellers what to know like, when is the best time to sell my business? How do I calculate what my business is worth? What is the profile of the buyer who will be willing to buy my business at the price and terms I want and deserve? Plus much more and her explanations are clear and understandable.
Like your business? Not in a hurry to sell?
This is the perfect time to begin to learning the steps and processes on how to exit your business. I encourage you do a quick read of the entire book and then calculate the value of your business using Julie’s easy formula. If you are not happy with the result, use this book as a tool to assess your business. Rethink how you are operating your business. Ask yourself what changes can I make that will improve my valuation… then make a plan and begin to implement those changes. I also encourage you to explore the many checklists she provides and begin to make a list of the next steps you are going to take. Be proactive… your business is an important asset!
People who have sold one or more businesses say when they start a new business they immediately begin to think about who the potential buyer(s) is going to be… and then build the business they will want to buy. It is solid advice.
Read EXIT! today. It’s a small investment of your time. I promise it will generate an exponential return on your investment. I also think you will enjoy the process.
Jim Horan, Author, Consultant, Speaker
President, The One Page Business Plan Company
How to Get the Most Out of This Book FAST
After working with literally hundreds of business sellers and buyers over the years, I know you are extremely busy with day-to-day operations, so congratulations for making the decision to read this important book.
By doing so, you are now on the path to understanding how to sell your company—a journey that many business owners don’t begin to think about until it’s too late and their business is no longer sellable.
In order to shorten the learning curve, I compiled all of the critical information presented in the last section titled “Wrapping It All Up.” In essence, you don’t have to read the entire book if you frequently reference this “toolbox” of information to avoid the costly mistakes that business owners inadvertently make.
The Wrapping It All Up section includes the following:
>> All Twenty-Seven Broker’s Secrets Noted in the Book
>> The Complete Selling Your Business Checklist
>> Four Sample Business Valuation Worksheets
>> How to Download Your Own FREE Valuation Worksheet
>> Eleven Deal-Breakers to Dodge
>> My Favorite Business Book Must-Reads
>> How to Select a Qualified Business Broker
Having said that, if you really want to ensure that you sell your business for the price you deserve, gift yourself with an afternoon of reading about how to successfully fund the next phase of your life where the daily pressure of running a business no longer weighs heavy on your mind.
In each chapter of EXIT! I will share with you why businesses change ownership (or not), how to determine the best time to sell, and how to value your own company in thirty minutes or less.
From there you’ll learn how to get ready for market and how to prepare your financial statements. Then we’ll even contemplate the cost benefit of selling your business on your own and—if not—how to assemble your success team.
Once you have a clear overview of the process, we will go deeper and discuss the difference between an asset sale and a stock sale, how to market for buyers, how to manage the offer and due diligence process, and, lastly, how to exit problem-free and with a bank account full of cash.
As I mentioned before, your reward for completing the twelve steps is the toolbox of checklists, all of my broker’s secrets, sample valuations sheets, plus a few extra resources to further support your journey.
Finally, after you finish the book, be sure to visit www.exitjourney.com for more tips, tools, videos, and events to help you fast-track your way to selling your business for the price you deserve.
Enjoy!
Julie Gordon White
UNDERSTANDING YOUR OPTIONS
“True generosity must benefit both parties. No woman can control her destiny if she doesn’t give to herself as much as she gives of herself.” ~ Suze Orman
Step One
Understand Why Businesses Don’t Sell and Do Sell
The life of a business owner is both rewarding and exhausting! All business owners know that to run a successful company you need to be a great marketer, control your costs, and deliver unbelievable customer service. However, when the time comes to exit your business, lack of preplanning will leave even the best operators hostage to poor financials and bottom-feeding buyers.
As a business owner, you deserve to achieve the highest market price for your company. Begin planning your exit strategy with the same amount of thought and detail that you plan your customer service strategy or craft your marketing plan. By doing so, you will be able to walk away from your company knowing that you created something bigger than yourself and have the financial stability to provide for the next stage of your life.
Creating and implementing an exit strategy for your business can be the difference between taking a long vacation or retiring with financial freedom after the closing!
But what if you don’t plan? What might your fate be? Instead of a smooth and painless transition out of your company, you may be forced to exit your business by one of the following unfortunate scenarios:
1. Closing the business due to steadily declining revenues.
2. Limiting your buyer pool from the open market to a single predatory competitor or undercapitalized employee.
3. Losing over 60 percent of the sale proceeds due to inadequate tax planning.
4. Shutting down your business due to a serious accident, grave illness, divorce, or an untimely death of a key employee or partner.
These are the most common exit scenarios for small businesses without an exit plan. Let’s explore each of them a bit deeper.
Closing the Business
This is obviously the most painful option. To be forced to close a business that you have put your heart and soul into developing is a sad misfortune and could have likely been avoided with proper planning.
To receive any cash at all, the owner will probably need to have a fire sale for any remaining assets. You’ve seen the Must Liquidate signs on retail stores in your neighborhood. You might have also seen ads in online classifieds offering unbelievably cheap or even free furniture and other equipment because business owners have no choice other than to close their doors forever (and may even be forced to file for bankruptcy).
A business owner of a $2 million company once told me, “Having to close my business felt like having a death in my family.”
Unsolicited Offer from a Competitor
I get called in frequently to assist business owners after they have been approached by a competitor seeking to buy them out. In this scenario, the buyer usually has the upper hand. The owner rarely understands what the market value is for the company, let alone how and what to communicate (or hold back) from a buyer that is probably a close competitor.
Broker’s Secret >>> Competitor Calling
When a competitor calls, proceed with extreme caution due to confidentiality and never share ANY information with a competitor without expert advice from a business broker, transaction attorney, and/or an accountant.
Succession Without Adequate Tax Planning
So your daughter decides that she is having a midlife crisis and wants to buy your business. You are thrilled that she wants to continue your dream and so you ask your attorney to draw up a contract. Just before you present her with the agreement, she tells you that she was hoping that you would just give her your company (she is your daughter after all!). In both situations STOP! I will probably say this a hundred times in this book (okay, probably not a hundred, but I should):
It’s NOT how much you get, it’s how much you KEEP!
If you are not aware of the tax consequences of a parent “gifting” a business to a child, you need to find out ASAP. Contact your accountant right away before changing the name on the sign out front!
Selling to a child without adequate tax planning isn’t the only way to end up giving your business proceeds to Uncle Sam.
If you are a C corporation and you sell only the assets of your corporation and not the stock, you may be subject to paying taxes on the consideration (consideration is cash, loan payments, etc.) received for the sale at the corporate level and then again at the personal level when you take the cash. There are ways to mitigate your tax burden, so spend the time and money to review and understand your options as they relate to the tax consequences of the sale.
Accident, Illness, Divorce, or Death
Hopefully you have been fortunate enough to identify and develop a key manager for your business. Over time, you have trusted this person with confidential information, given her or him significant responsibility, and, overall, have come to depend on her or him as your right-hand person. If this is your situation, then congratulations. Finding and developing this person is one of the most important activities a CEO can do to allow his or her company to grow. However, be aware that dependence on a key employee without documented systems in place is very risky. If a competitor steals this person away from you or they strike out on their own, be sure to have your policies, procedures, and systems documented and ready for a new hire to seamlessly step into the role. If you neglect this important process, you may find yourself in a desperate situation, one in which your key manager and chief moneymaker have just walked out the door.
Equally devastating, a sudden illness, divorce, or death of a key employee or partner will have the same effect or greater, so plan for the best but prepare for the worst. Treat your business as if you were planning to franchise it (for information about franchising your business, visit www.franchise.org) and document every single step just like McDonald’s does for its franchisees. There’s a reason why every burger tastes the same no matter where you go, so take heed and write everything down—today!
Fortunately, for proactive business owners, there are many profitable exit scenarios:
1. Merging with another company
2. Receiving an investment from a private equity group
3. Structuring an Employee Stock Option Plan (ESOP)
4. Supporting a management buyout
5. Tax-advantageous transition of the business to family member(s)
6. Selling the company to a third-party buyer
These exit options are a million times better figuratively and literally.
Now that you understand what you don’t want to happen and also what you hope to happen, you can now see why planning your exit is so important. Simply put, exit planning or lack of, can either make you, save you, or lose you thousands (if not millions) of dollars.
While all of the options above are worthy of their own lengthy discussion, for the purposes of this book, we will focus strictly on number six, the sale of your company to a third-party buyer. After working with hundreds of sellers and buyers, my opinion is that a third-party sale offers you the best chance to receive the maximum price you deserve.
Broker’s Secret >>> Legacy vs. Cash
Selling to a third party almost always results in a higher price and better terms, but if you decide to sell to your family, I both respect and applaud you. Remember to do your tax planning and take a lot of pictures the day you hand over the keys.
Before jumping into the details of a planned third-party sale, let’s explore the benefits of doing so.
The Benefits of a Planned Sale of Your Business
A planned sale allows you the opportunity to seek multiple potential buyers in the open market who will often pay a higher price than competitors or employees who don’t feel they should pay for infrastructure they already have or helped build.
A planned sale also allows for an owner’s financial goals, objectives, and timetable to be achieved and not at the mercy of the buyer’s financial goals, objectives, and timetable.
Lastly, with a planned sale, you have time to understand the strengths, weaknesses, and opportunities and threats of your company and make changes accordingly with the goal of significantly increasing the final selling price.
Now that you understand the benefits of a planned sale, one of the first critical steps towards achieving your goal is to contemplate and commit to why you have decided to sell at this time.
Possible Reasons for Selling the Business
With the planned sale of your business, your reason for selling will be one of the most important “trust factors” created to reach agreement with a potential buyer.
Selling your business to an outside buyer begins with a courtship. Don’t ask to get married on the first date, and never, ever lie about why you want to get to know them better!
The following exit options are the most common reasons for selling a business to a third party, listed in order of highest credibility:
Retirement
This is THE very best reason for selling. If you are of retirement age, a buyer will more readily accept that you are selling so you can start enjoying the next phase of your life—not just hiding from problems in the business such as the loss of a customer or key employee.
Health Issues
Health issues are another legitimate reason to sell. You don’t have to divulge all of the details of your personal health situation, but the more forthcoming you are, the greater likelihood that the buyer will believe your reason for your selling along with other critical aspects of the sale.
Death
Death of an owner or partner is a very unfortunate but legitimate reason for a sale.
Divorce/Partnership Disputes
Divorce and/or partnership disputes are also legitimate reasons for a sale as long as they significantly affect your ability to operate the business. If you cite this as your reason for sale, make sure you have a good story to tell (and don’t mind telling it).
Loss of Market Share
Be honest about declining sales, because in a challenging economy, you can. Be forthcoming with information, share the down and dirty details, and be prepared to present the plan to help the new buyer grow again as the economy rebounds. Also, be prepared to participate in the financing (promissory note or an earnout—more on these financial instruments later) to reap the upside benefits.
Burn-Out or “Other Business Interests”
Every business owner gets burned out. After 10+ years of growing, nurturing, and painstakingly building your company you may be at the end of your rope resulting in what I call the “entrepreneur’s flu” or burn-out. A sale due to burn-out is often euphemistically marketed by business brokers as “other business interests”: however, if you use burn-out to disguise a problem in the business, a buyer will quickly (or eventually—which is even worse) figure it out and your deal will die a slow and painful death.
Second Generation Not Interested
In our research, we found that only 30 percent of all family-held businesses transfer to the second generation and only 15 percent make it to the third. When the time is right, have a frank conversation with your potential heirs or successors because it’s never too early to find out that taking over the family business is your dream and not theirs.
Business Growing Too Fast
This is a great problem to have! This most often occurs in an emerging market or with a hard-driving sales- and marketing-oriented CEO. The hyper growth creates the need for additional capital to finance infrastructure, head count, or improve cash flow. This situation calls more for an investor or equity partner than a sale, so make sure you are clear about what your needs and objectives are.
Personal Diversification
For some entrepreneurs, businesses are strictly investments, so those business owners will say that they want to diversify their interests to buy something else. To a buyer, this often doesn’t make sense. If you sell this asset to buy another, there went your diversification. In a closely held company (owner as the operator) this can be a poor reason for a sale.
So, to recap, make sure your reason for selling is legitimate and your “selling story” is practiced. Answering the “reason for selling question” honestly and convincingly will set the stage for an open and friction-free negotiation.
“The checklist and Broker's secrets make it easy to put the whole 'selling your business' puzzle together.”
-George Lanza, Former Chair, M&A Source, CEO, Plethora Businesses
“Julie’s writing style is as if she is talking to me personally over a cup of coffee. I am so glad she took the time to write the book so all business owners will have a ready-reference whenever we need it.”
-Nina Cooper, CEO, Nina Designs
With All This Buzz, What's the Book About?
EXIT! 12 Steps to Sell Your Business for the Price You Deserve demystifies the selling process ensuring that business owners will be able to sell their business for the maximum market price, whether they want to sell today or ten years from today.
The EXIT! book begins with the reasons businesses change ownership (or not), how to determine the best time to sell, and teaches business owners how to value their own business in 30 minutes or less. From there, the reader will discover how to get the business ready for market, how to prepare financial statements and even contemplate the cost benefit of selling a business “For Sale By Owner”, and if not, how to assemble a selling success team.
At this point in the book, a business owner will have a clear overview of the process allowing the book to go deeper to discuss the difference between an asset sale and a stock sale, how to market for buyers, how to manage the offer and due diligence process, and lastly, how to exit problem-free and with a bank account full of cash!
The reader’s reward for being a proactive business owner is the final section, “Wrapping It All Up”, which is a toolbox of checklists, all of the 27 broker’s secrets included in the book, sample valuations worksheets, plus additional resources to further support a business owner’s successful exit journey.
Here's a sneak peek of Step One of the EXIT! Book...
INTRODUCTION
Most people can’t or won’t think about how or when they will exit from their business unless they are force to. They know this will be one of the most significant events in their life that will impact them, their family, partners, employees and possibly their community. The continuous postponement of planning the exit from one’s business is a serious mistake.
Failing to proactively plan your exit means you run the risk you will be forced to sell your company because of unexpected health, personal or family events, poor economic conditions, poor management decisions, fraud, bankruptcy and other disastrous business ending events. Selling a business under duress is never a happy event. It also may mean the people the most important to you will have to tackle and manage this process because you can’t.
Here is the good news! In this book, Julie Gordon White does an amazing job of demystifying and simplifying the process of how to exit from your business. She clearly explains the 12 steps you must take to sell your business for the price you want and deserve. This is a comprehensive “how to” manual that covers the entire process, step by step.
The author immediately answers the questions most sellers what to know like, when is the best time to sell my business? How do I calculate what my business is worth? What is the profile of the buyer who will be willing to buy my business at the price and terms I want and deserve? Plus much more and her explanations are clear and understandable.
Like your business? Not in a hurry to sell?
This is the perfect time to begin to learning the steps and processes on how to exit your business. I encourage you do a quick read of the entire book and then calculate the value of your business using Julie’s easy formula. If you are not happy with the result, use this book as a tool to assess your business. Rethink how you are operating your business. Ask yourself what changes can I make that will improve my valuation… then make a plan and begin to implement those changes. I also encourage you to explore the many checklists she provides and begin to make a list of the next steps you are going to take. Be proactive… your business is an important asset!
People who have sold one or more businesses say when they start a new business they immediately begin to think about who the potential buyer(s) is going to be… and then build the business they will want to buy. It is solid advice.
Read EXIT! today. It’s a small investment of your time. I promise it will generate an exponential return on your investment. I also think you will enjoy the process.
Jim Horan, Author, Consultant, Speaker
President, The One Page Business Plan Company
How to Get the Most Out of This Book FAST
After working with literally hundreds of business sellers and buyers over the years, I know you are extremely busy with day-to-day operations, so congratulations for making the decision to read this important book.
By doing so, you are now on the path to understanding how to sell your company—a journey that many business owners don’t begin to think about until it’s too late and their business is no longer sellable.
In order to shorten the learning curve, I compiled all of the critical information presented in the last section titled “Wrapping It All Up.” In essence, you don’t have to read the entire book if you frequently reference this “toolbox” of information to avoid the costly mistakes that business owners inadvertently make.
The Wrapping It All Up section includes the following:
>> All Twenty-Seven Broker’s Secrets Noted in the Book
>> The Complete Selling Your Business Checklist
>> Four Sample Business Valuation Worksheets
>> How to Download Your Own FREE Valuation Worksheet
>> Eleven Deal-Breakers to Dodge
>> My Favorite Business Book Must-Reads
>> How to Select a Qualified Business Broker
Having said that, if you really want to ensure that you sell your business for the price you deserve, gift yourself with an afternoon of reading about how to successfully fund the next phase of your life where the daily pressure of running a business no longer weighs heavy on your mind.
In each chapter of EXIT! I will share with you why businesses change ownership (or not), how to determine the best time to sell, and how to value your own company in thirty minutes or less.
From there you’ll learn how to get ready for market and how to prepare your financial statements. Then we’ll even contemplate the cost benefit of selling your business on your own and—if not—how to assemble your success team.
Once you have a clear overview of the process, we will go deeper and discuss the difference between an asset sale and a stock sale, how to market for buyers, how to manage the offer and due diligence process, and, lastly, how to exit problem-free and with a bank account full of cash.
As I mentioned before, your reward for completing the twelve steps is the toolbox of checklists, all of my broker’s secrets, sample valuations sheets, plus a few extra resources to further support your journey.
Finally, after you finish the book, be sure to visit www.exitjourney.com for more tips, tools, videos, and events to help you fast-track your way to selling your business for the price you deserve.
Enjoy!
Julie Gordon White
UNDERSTANDING YOUR OPTIONS
“True generosity must benefit both parties. No woman can control her destiny if she doesn’t give to herself as much as she gives of herself.” ~ Suze Orman
Step One
Understand Why Businesses Don’t Sell and Do Sell
The life of a business owner is both rewarding and exhausting! All business owners know that to run a successful company you need to be a great marketer, control your costs, and deliver unbelievable customer service. However, when the time comes to exit your business, lack of preplanning will leave even the best operators hostage to poor financials and bottom-feeding buyers.
As a business owner, you deserve to achieve the highest market price for your company. Begin planning your exit strategy with the same amount of thought and detail that you plan your customer service strategy or craft your marketing plan. By doing so, you will be able to walk away from your company knowing that you created something bigger than yourself and have the financial stability to provide for the next stage of your life.
Creating and implementing an exit strategy for your business can be the difference between taking a long vacation or retiring with financial freedom after the closing!
But what if you don’t plan? What might your fate be? Instead of a smooth and painless transition out of your company, you may be forced to exit your business by one of the following unfortunate scenarios:
1. Closing the business due to steadily declining revenues.
2. Limiting your buyer pool from the open market to a single predatory competitor or undercapitalized employee.
3. Losing over 60 percent of the sale proceeds due to inadequate tax planning.
4. Shutting down your business due to a serious accident, grave illness, divorce, or an untimely death of a key employee or partner.
These are the most common exit scenarios for small businesses without an exit plan. Let’s explore each of them a bit deeper.
Closing the Business
This is obviously the most painful option. To be forced to close a business that you have put your heart and soul into developing is a sad misfortune and could have likely been avoided with proper planning.
To receive any cash at all, the owner will probably need to have a fire sale for any remaining assets. You’ve seen the Must Liquidate signs on retail stores in your neighborhood. You might have also seen ads in online classifieds offering unbelievably cheap or even free furniture and other equipment because business owners have no choice other than to close their doors forever (and may even be forced to file for bankruptcy).
A business owner of a $2 million company once told me, “Having to close my business felt like having a death in my family.”
Unsolicited Offer from a Competitor
I get called in frequently to assist business owners after they have been approached by a competitor seeking to buy them out. In this scenario, the buyer usually has the upper hand. The owner rarely understands what the market value is for the company, let alone how and what to communicate (or hold back) from a buyer that is probably a close competitor.
Broker’s Secret >>> Competitor Calling
When a competitor calls, proceed with extreme caution due to confidentiality and never share ANY information with a competitor without expert advice from a business broker, transaction attorney, and/or an accountant.
Succession Without Adequate Tax Planning
So your daughter decides that she is having a midlife crisis and wants to buy your business. You are thrilled that she wants to continue your dream and so you ask your attorney to draw up a contract. Just before you present her with the agreement, she tells you that she was hoping that you would just give her your company (she is your daughter after all!). In both situations STOP! I will probably say this a hundred times in this book (okay, probably not a hundred, but I should):
It’s NOT how much you get, it’s how much you KEEP!
If you are not aware of the tax consequences of a parent “gifting” a business to a child, you need to find out ASAP. Contact your accountant right away before changing the name on the sign out front!
Selling to a child without adequate tax planning isn’t the only way to end up giving your business proceeds to Uncle Sam.
If you are a C corporation and you sell only the assets of your corporation and not the stock, you may be subject to paying taxes on the consideration (consideration is cash, loan payments, etc.) received for the sale at the corporate level and then again at the personal level when you take the cash. There are ways to mitigate your tax burden, so spend the time and money to review and understand your options as they relate to the tax consequences of the sale.
Accident, Illness, Divorce, or Death
Hopefully you have been fortunate enough to identify and develop a key manager for your business. Over time, you have trusted this person with confidential information, given her or him significant responsibility, and, overall, have come to depend on her or him as your right-hand person. If this is your situation, then congratulations. Finding and developing this person is one of the most important activities a CEO can do to allow his or her company to grow. However, be aware that dependence on a key employee without documented systems in place is very risky. If a competitor steals this person away from you or they strike out on their own, be sure to have your policies, procedures, and systems documented and ready for a new hire to seamlessly step into the role. If you neglect this important process, you may find yourself in a desperate situation, one in which your key manager and chief moneymaker have just walked out the door.
Equally devastating, a sudden illness, divorce, or death of a key employee or partner will have the same effect or greater, so plan for the best but prepare for the worst. Treat your business as if you were planning to franchise it (for information about franchising your business, visit www.franchise.org) and document every single step just like McDonald’s does for its franchisees. There’s a reason why every burger tastes the same no matter where you go, so take heed and write everything down—today!
Fortunately, for proactive business owners, there are many profitable exit scenarios:
1. Merging with another company
2. Receiving an investment from a private equity group
3. Structuring an Employee Stock Option Plan (ESOP)
4. Supporting a management buyout
5. Tax-advantageous transition of the business to family member(s)
6. Selling the company to a third-party buyer
These exit options are a million times better figuratively and literally.
Now that you understand what you don’t want to happen and also what you hope to happen, you can now see why planning your exit is so important. Simply put, exit planning or lack of, can either make you, save you, or lose you thousands (if not millions) of dollars.
While all of the options above are worthy of their own lengthy discussion, for the purposes of this book, we will focus strictly on number six, the sale of your company to a third-party buyer. After working with hundreds of sellers and buyers, my opinion is that a third-party sale offers you the best chance to receive the maximum price you deserve.
Broker’s Secret >>> Legacy vs. Cash
Selling to a third party almost always results in a higher price and better terms, but if you decide to sell to your family, I both respect and applaud you. Remember to do your tax planning and take a lot of pictures the day you hand over the keys.
Before jumping into the details of a planned third-party sale, let’s explore the benefits of doing so.
The Benefits of a Planned Sale of Your Business
A planned sale allows you the opportunity to seek multiple potential buyers in the open market who will often pay a higher price than competitors or employees who don’t feel they should pay for infrastructure they already have or helped build.
A planned sale also allows for an owner’s financial goals, objectives, and timetable to be achieved and not at the mercy of the buyer’s financial goals, objectives, and timetable.
Lastly, with a planned sale, you have time to understand the strengths, weaknesses, and opportunities and threats of your company and make changes accordingly with the goal of significantly increasing the final selling price.
Now that you understand the benefits of a planned sale, one of the first critical steps towards achieving your goal is to contemplate and commit to why you have decided to sell at this time.
Possible Reasons for Selling the Business
With the planned sale of your business, your reason for selling will be one of the most important “trust factors” created to reach agreement with a potential buyer.
Selling your business to an outside buyer begins with a courtship. Don’t ask to get married on the first date, and never, ever lie about why you want to get to know them better!
The following exit options are the most common reasons for selling a business to a third party, listed in order of highest credibility:
Retirement
This is THE very best reason for selling. If you are of retirement age, a buyer will more readily accept that you are selling so you can start enjoying the next phase of your life—not just hiding from problems in the business such as the loss of a customer or key employee.
Health Issues
Health issues are another legitimate reason to sell. You don’t have to divulge all of the details of your personal health situation, but the more forthcoming you are, the greater likelihood that the buyer will believe your reason for your selling along with other critical aspects of the sale.
Death
Death of an owner or partner is a very unfortunate but legitimate reason for a sale.
Divorce/Partnership Disputes
Divorce and/or partnership disputes are also legitimate reasons for a sale as long as they significantly affect your ability to operate the business. If you cite this as your reason for sale, make sure you have a good story to tell (and don’t mind telling it).
Loss of Market Share
Be honest about declining sales, because in a challenging economy, you can. Be forthcoming with information, share the down and dirty details, and be prepared to present the plan to help the new buyer grow again as the economy rebounds. Also, be prepared to participate in the financing (promissory note or an earnout—more on these financial instruments later) to reap the upside benefits.
Burn-Out or “Other Business Interests”
Every business owner gets burned out. After 10+ years of growing, nurturing, and painstakingly building your company you may be at the end of your rope resulting in what I call the “entrepreneur’s flu” or burn-out. A sale due to burn-out is often euphemistically marketed by business brokers as “other business interests”: however, if you use burn-out to disguise a problem in the business, a buyer will quickly (or eventually—which is even worse) figure it out and your deal will die a slow and painful death.
Second Generation Not Interested
In our research, we found that only 30 percent of all family-held businesses transfer to the second generation and only 15 percent make it to the third. When the time is right, have a frank conversation with your potential heirs or successors because it’s never too early to find out that taking over the family business is your dream and not theirs.
Business Growing Too Fast
This is a great problem to have! This most often occurs in an emerging market or with a hard-driving sales- and marketing-oriented CEO. The hyper growth creates the need for additional capital to finance infrastructure, head count, or improve cash flow. This situation calls more for an investor or equity partner than a sale, so make sure you are clear about what your needs and objectives are.
Personal Diversification
For some entrepreneurs, businesses are strictly investments, so those business owners will say that they want to diversify their interests to buy something else. To a buyer, this often doesn’t make sense. If you sell this asset to buy another, there went your diversification. In a closely held company (owner as the operator) this can be a poor reason for a sale.
So, to recap, make sure your reason for selling is legitimate and your “selling story” is practiced. Answering the “reason for selling question” honestly and convincingly will set the stage for an open and friction-free negotiation.
