Waiting until the last minute is almost never a good strategy if you’re planning to successfully sell or transfer your business one day.
The oldest baby boomers, people born between 1946 and 1964, turned 65 in 2011. Over the next 15 years, experts expect this group will transfer over $10 trillion of business assets to the next generation of owners.
When business owners think about exiting their business, they basically have four options: transferring it to a relative, selling to a manager or group of managers, selling to an outside party, or selling to employees through an Employee Stock Ownership Plan, or ESOP.
To maximize the economic value of their business when transferred, experts agree that business owners shouldn’t wait until they don’t have many options, such as being forced to exit because of illness or just not being able to keep up. Owners should plan ahead and prepare their business for an eventual transfer and keep as many options open as possible.
It just makes sense for a business owner who is nearing retirement to not only look at his company’s sellability, but also consider external factors such as the economy, industry trends, tax rates, and the availability of affordable financing for the buyer. The best time to sell/transfer might be before the owner initially planned to retire, rather than missing out on a favorable market, and having to wait 5 – 10 years for the next favorable market.
Experts agree that most business owners underestimate the time it takes to successfully transfer a business. Frequently, it can take a year or more to prepare a company for sale/transfer to optimize the sale/transfer price. The process of confidentially marketing and selling the business, and getting that deal financed and closed, can frequently take a year or longer. Lastly, a business owner needs to be prepared to stay on for a six-month to three-year transition period after the sale because this is usually a requirement.
It’s estimated that most owners of privately held businesses have 70% to 90% of their personal net worth tied up in their business, or pledged in personal guarantees for the business’ debts. Yet it seems that most business owners spend more time planning their annual vacation than planning for the successful transfer of their business – and many business owners don’t take an annual vacation!
As ever, if you know of a business owner who’s thinking of selling or buying a business and who might benefit from a free, confidential, consultation with us, have them contact me directly.
By: Mike Ertel, Transworld M&A Advisors