Tips for business owners considering an exit

Question: During the lockdown, I spent more time with my family, and now my priorities have shifted. I’m thinking about selling my business in the next few years. Do you have any recommendations for what I should consider before I move forward?

A: Making the difficult decision to exit our business can be a significant moment in our lives. The COVID-19 pandemic granted many business owners the opportunity to spend more time at home than they may have otherwise, and many have reevaluated their priorities, just as you have done. There are numerous details to consider and potential errors to avoid for those who are ready to sell.

These are a few of the things we advise our clients to keep a particular eye on as they proceed with a deal:

• Timing is everything. It is crucial to pay close attention to the timing of your sale when looking for potential buyers. If the industry you are in has recently experienced a critical mass of ergers and acquisitions deals, there may not be many buyers out there looking to acquire at the moment. More internally, many businesses are put up for sale when an owner or critical employee is leaving or retiring, which will make the business less attractive to a potential buyer. In these cases, it is important to bolster your personnel in preparation for the sale.
• Manage your expectations. We recommend annual valuations to the business owners we work with. Part of the reason we do this is to always have a good general idea of what the business is worth, from an outsider’s perspective. This way, you can choose the best possible moment to sell because you can better determine the outcome of a sale, and whether it will meet your expectations and family’s wealth objectives. Wealth managers can play critical roles at this stage in helping you plan how the invested sales proceeds will generate income.
• Top talent. Suppose an owner is planning an exit along with the sale. In that case, potential buyers will perform careful analysis on the remaining top talent to ensure the business will keep running (and performing) as anticipated. But these types of ownership changes can also cause those key employees to plan their own exits, so consider how you will reward them to stay on through a transition, or ideally, indefinitely.
• Legal matters. Unresolved litigation is a huge red flag to potential buyers. It makes for a major risk many buyers don’t want to take on. Resolve these types of matters before proceeding with a sale, though we always advise clients to avoid litigation as much as possible.
• Personal emotions. Business owners have spent years building their companies, so it is natural they have an emotional tie to the organization. Sometimes this translates into an unrealistic expectation of the value of what the company is worth. Other times, we see deals derailed due to personal grievances, perceived slights or other minor issues. In these cases, it is critically important to trust your advisers in the process and keep the long-term interests of both yourself AND your business front of mind.
• Team mindset. Selling a business and, in particular, nurturing the deal from start to finish is challenging. Business owners need to be open to bringing their trusted advisers  into the process or hiring new ones as the need arises. You want the right team in your corner during a business sale, as it can make all the difference in whether a deal succeeds from both the seller and the buyer perspectives.