About 4 years ago CIBC World Markets published a study which said that more than half of the owners of small businesses were expected to retire within 15 years.
At the time, 3 points paticularly caught my attention. The fact that the sale of their business was expected to generate roughly 30% of retirement income for self-employed people was the first (I am a Scotsman after all). The second was that approximately 40% of business owners were expected to sell their companies to outsiders or non-family interests. And finally, less than 50% of the business owners had a clear plan for exiting their business.
From what I can see not much has changed. You may find this hard to believe but there will come a day when the call of the golf course/boat/cottage/grandchildren etc. can no longer be ignored and even you will either want to sell your company or pass it on to someone in your family. So here are 4 tips based on the experiences of the companies we’ve worked with since the study was published.
Tip # 1. Plan your exit early and carefully. That way you’ll get the biggest financial return for the years of sleepless nights, missed vacations and everything else that you’ve invested. You don’t ever want to look back and say “I could have got more for the company”. Even if you know who your successor will be, start early, don’t risk waiting until health or other issues pressure you to complete a deal and get out.
Tip # 2. For most of us, selling or passing along our business is a once in a lifetime experience, so talk to people who has already done it – or who have advised those who have done it. Think about things like how long a transition period you want – will you leave immediately after the transfer of ownership or will you stay on for a predetermined period of time? Consider how you would like the purchase price to be paid – are you willing to have some of it come from future profits? Talk to your personal financial advisor. Get him/her to update your calculations about how much you’ll need for retirement.
Tip # 3. Get the help of specialists to value your company and to structure the sale or transfer in order to handle the tax and legal issues effectively. The accountant who does your financial statements and the lawyer who does your contract work may not have a lot of experience buying and selling companies. Find someone who specializes in the valuation of companies (he/she may have the CBV designation). If the valuation comes in below what you think the company is worth they’ll help you understand why and tell you what you can do about it (Another reason to start early – give yourself time to take a few simple steps that could increase the selling price.) They’ll also make sure you don’t overlook things like the value of any intellectual property you leave in the company. Similarly, find an accountant and/or lawyer and who works daily with the tax and legal aspects of the sale/acquisition and transfer of businesses. If you don’t know anyone we can recommend some specialists we’ve worked with.
Tipo # 4. Many business owners believe that it will only take a few months to dispose of their company, once they’ve decided to get out. That’s an incorrect assumption. Even with a successor waiting in the wings, it takes many months to put everything in place. If your buyer is an outsider rather than an employee or a family member it will take longer to complete the sale. Finding a buyer and then negotiating with someone you don’t know will take even more time.
To build and run a profitable business you have had to do many things well. Don’t let the last thing you do with that business be one of the worst.