On your mark, get set . . . wait. Are you ready? JT Kraai from Exit Strategies 360 shares five key questions every business owner needs to ask before they move on to "sell it". Article originally appeared here.
Ready to Sell? Five Critical Questions To Consider
For some the thought of selling creates a feeling of euphoria, for others terror. After decades of successfully owning and operating a company, the thought of selling may cross your mind. When it does, shouldn’t your emotions be closer to the euphoria than terror? For many owners this is not the case.
To assist with the decision making process, please consider 5 critical questions; answered thoughtfully they should have a profound effect on your ultimate timing and transition from your business:
1. Who am I Without my Business?
Let’s face it, business ownership comes with perks. As business owners you are needed. People depend on you and your opinion is paramount… at the end of the day you’re the boss. Being ‘important’ can become a way of life.
When considering a sale or transition it may be troubling when the realization strikes that you won’t be as important or have the responsibility you once did.
Years ago I sold a business for an 83 year-old who had started the company in 1949 at the age of 29. The sales process and due diligence were going smooth until two weeks prior to closing, I received a call I’ll never forget. He was struggling with his decision to sell, with his voice crackling he exclaimed, “Without my business, who am I?” After over 50 years as a business owner he didn’t know who he was supposed to be without it.
Your case may not be this extreme. However, make sure you have a place to ‘land’ and that you have something or somebody pulling you away from the business- your family, hobbies, etc. Without it, both your decision and journey become more difficult.
2. Selling- Are you Making it a Process or Choice?
Done improperly it looks like this- During a frustrated moment you decide to sell what took you years to create. You’ve crossed the ‘emotional hurdle’ of wanting to sell and now just want to close this chapter of your life and get onto the next. Probably at the end of your rope and with no energy or desire to prepare your business for sale, moving forward you discover options are minimal and you end up selling for significantly less than you thought. Plus, the IRS gets more than their fair share.
It is simple- not planning is costly.
Done properly, it’s a deliberate yet basic course of action requiring you to plan for the road ahead. With a handful of right questions asked and a nominal effort, you’ll be able to save tens or hundreds of thousands of dollars at the point of sale and resulting tax liability. With answers you’ll also significantly reduce your emotional angst and stress in the 3-5 years prior to selling.
The results are obvious, the ROI due to your intentional preparation will be returned to you 10-20 x’s over. Most owners get one chance at successfully selling their life’s work… why not do it right?
3. Spouse Ready to have you Home?
If your family works like mine any important decision takes two ‘yes’ votes. With the chaos and stress level of owning a restoration business, being at home for weeks on end probably sounds appealing as it would allow you the opportunity to finally clean the garage and get caught up on the honey-do list.
Then what? The decision to retire is a big one; it should not be made lightly and it should be made together. If both of you are eagerly looking forward to the transition, then you have your answer. If there is hesitancy with either of you, then a meaningful discussion is probably overdue.
Being on the same page with this decision will go a long way toward the planning and preparation process.
4. Once I Sell, can I Continue to Work?
Most owners assume once they sell they have to stop working, this is not the case. In your mind separate working from owning. You may be at a point in your career where you’re tired of the hassles and headaches that come with owning a business in a difficult industry, but you’re not ready to stop working. It doesn’t need to be one or the other.
The solution for some is to sell their business and stay on as a sales manager, project manager or estimator. This allows you to take some chips off the table, boost your retirement accounts and minimize your exposure. Additional benefits include: staying connected to the office and clients, earning a decent wage and benefits for a time period suitable to you and your family, and in many cases you’ll be allowed a very flexible work schedule. Another added bonus, when the work day is over, you get to leave work at work.
Though not appealing for everybody, this can make for a wonderful transition period between owning the business and full-time retirement.
5. What are you Going to do with the Money?
Many owners can get laser-focused on wanting to sell, never stopping to think about what they’ll do with their net proceeds. Would you pay off your home or rental property? Buy more property? Place the funds in the stock market or mutual funds? Buy gold or silver? Establish a college fund for your grandkids? Become involved in charitable organizations?
There is no wrong answer. However, it deserves to be (at least minimally) talked about. Your nest egg is not something to be taken lightly. Thus, some clarification and expectations on what your proceeds will be used for and where they’ll be placed is a critical variable in your decision.
Beyond the obvious questions (business value, taxes, preparation, confidentiality, etc.), there are important variables to consider when the thought of selling crosses your mind. Without any forethought or preparation, the road ahead is virtually guaranteed to be a bumpy one.