More Than A Transaction: Selling Your Business as Part of Your Bigger Financial Plan

You’re a business owner, so you get it.

This isn’t just a “job.” You don’t punch out at 5 and forget about it until Monday morning. Maybe your kids work in the business, maybe you’re the third generation to helm the ship. This is your baby — something you’ve toiled over, built from scratch, nurtured for years (decades?), and grown into what’s now a key part of your identity.

When you’re a business owner, your company isn’t just one separate piece of your life. It’s ingrained in every piece of who you are.

So, when it comes time to sell your business, it’s not just about the sale. Not only will it likely be one of the biggest financial events of your career, the sale of your business has massive implications for nearly every other area of your life.

As you’re preparing to exit, make sure you’re working with a team of experts who can help you craft a valuation and sale that fits into your overall financial puzzle — a picture that includes everything from retirement to charitable giving to legacy planning (and more). By examining some key areas, you’ll start to understand how intertwined everything really is.

Decide your ‘why’

I tell my clients that what seems like an easy question can often be complex. The answer to “Why are you selling?” can help dictate everything from the type of sale that’s best for you to who the ideal buyer is, to even what you walk away with.

Start with writing or typing out your “why,” which should include a statement on the underlying reasons for selling your business. Not only do you need to fully understand your motivations if you ever hope to articulate it to potential buyers, but the work you do in this step will be a good foundation for the prospectus you’ll need to present to buyers, otherwise known as a confidential information memorandum, or CIM.

This exercise will also help you understand the kind of buyer you want. Do you care if the next owner continues your legacy, or are you looking more for maximum profit? Do you have certain goals you want to achieve through the sale? How will you feel once you’re no longer in charge?

By fully examining your “why” you can also get a better gauge on how committed you are to selling it. Is now indeed the right time?

What’s your value?

The owner almost always has a biased perspective on the value of their own business, but that’s understandable. I often see owners perceive the value as much more than it should be, or sometimes they go the other way and grossly undervalue it. It’s a tough thing to nail down: Between weighted averages of EBITDA, revenue and cash flow and countless other metrics, such as interest coverage, days sales outstanding, inventory turnover and more, it’s almost impossible to come up with a number yourself.

This is where your advisor can help. We’re able to compare a variety of valuation methods (such as revenue multiples, discounted cash flow, etc.) and look at hundreds of comparable businesses in your industry. We then combine that with several other factors, like your location, your industry, your equipment assets, customer contracts, etc., to produce a realistic number you can work with.

Keep in mind that several non-financial metrics can also play a big role. What does your customer concentration look like? What are your financial governance policies? How have you done with reducing employee turnover and improving retention? Even your online presence and the physical state of your property and assets make a difference. Of course, at the end of the day, it’s really about the number someone is willing to give you that will be the final word.

Work with your advisor to start building your plan for not only determining your business’s value but also some strategies to increase that valuation as you approach sale.

Selling the bigger picture

Of course, the sale of your business doesn’t mean much unless it’s contributing to your future goals once you’ve exited. Working with a wealth advisor, you can evaluate what you need for your retirement or for that next phase of life and ensure the proceeds from the sale are funding everything appropriately.

By starting your succession planning process early (ideally five years or more ahead of time), you’ll be able to make tweaks and small adjustments throughout the process to ensure the plan continues to match your broader estate plan. While some goals, such as giving to charity or paying for college, are less subject to change, other priorities – like family health issues or inheritance planning – may need several adjustments during the sale process.

Selling your business deserves a holistic approach, and you deserve a team that sees your entire financial picture. Just like you, we know this is more than just your job. We get it. And we’re ready to be your partner every step of the way.