Guest Post: Selling Your Business

Introduction

It is time to sell your business! Or it may be time to transition the business. Perhaps you want to do something different. All you know is that the time for change is approaching.

Change is hard, especially when it involves something you have poured your blood, sweat, and tears for many years.

The transition from your business is likely your life's most significant economic event. Ensuring a proper plan is in place, the right people are by your side, and a good understanding of the process is paramount. When considering a transition, there are three main topics to consider: 1) Your Identity Shift, 2) Your Advisory Team, and 3) the Succession/Exit Process. This guide will discuss each of these topics and help guide you through the transition steps.

Part 1: Your Identity Shift

Identity

“Identity is ‘a well-organized conception of the self, consisting of values and beliefs to which the individual is solidly committed.’ Put simply, your identity as a person is what you’re most committed to.” Your identity can be wrapped up in many different things: being a parent, child, athlete, employee, artist, spouse, addict, good religious person, or business owner, to name a few. Each of those identities is not ‘bad’ in and of itself, but if the specific identity is all-encompassing, the person may face a problem or crisis when that identity is taken away.

A business owner must undergo an identity shift to sell their business. Often, the business has become the owner’s identity, one of the things they were most committed to. The business owner has worked for years to build something beautiful, profitable, full of value, and sellable. All that time, energy, and commitment can cause the business owner to be fully wrapped up in the business. It is their identity. There is no separation between the business and the individual.

How to Shift to a New Identity

From a biblical perspective, Christ says, “I am the vine; you are the branches. If you remain in me and I in you, you will bear much fruit; apart from me you can do nothing.” Christ offers a new identity as His beloved son/daughter. Christ becomes the foundational rock in one’s life. Christ tells a parable about a man who builds his house on sand compared to another man who builds his house on a rock. When the storm comes, the house on the sand is washed away, but the house on the rock remains. The identities listed above, such as a business owner or employee, are not eternal; only Christ and the relationship with Him are eternal. The new identity in Christ as a beloved son/daughter is lasting.

You are not your business, and your business is not you. Your business is what you do, not who you are. Accepting this fact can help you through the emotional process of letting go of your business and clinging to your true identity.

There are many ways to help yourself shift identities. You may want to find another activity or venture to commit to. Many business owners turn to spending more time with family, becoming more involved in philanthropic activities and non-profits, or moving on to another business venture. These are simple things you can do to find a new commitment and focus.

Time to Open the Discussion

Once a business owner desegregates themselves from the business, they are now able to objectively discuss the next steps. The next steps can even include keeping the business but setting it up with a management team to run, allowing the owner to manage passively. There are many options for the next stage of the business. Coming to an objective decision takes time, as it includes planning, emotional processing, and discovering what the business owner wants. Therefore, it is best to start the conversation as soon as possible with a trusted advisor.

Part 2: Your Advisory Team

The team surrounding a business owner is critical when selling a business. This team consists of trusted advisors who will guide the process. The team includes a succession/exit planner, wealth planner, business broker/investment banker, M&A transactional attorney, CPA, and estate planning attorney.

The Team

• Succession/Exit Planner: The Succession/Exit Planner (SEP) is the team's quarterback. The SEP ensures that all the team members are assembled and current on all conversations. The SEP should be the first team member added to the team as the SEP starts the discussion on what is next for the business owner. The SEP helps create the plan to move forward and then helps to implement the plan. The SEP is with the business owner from the first conversations to the close of the transaction, guiding the business owner along the way.
• Wealth Planner: The Wealth Planner is the second member of the team. The business owner's number one question is, “What number do I need to decide on to retire and fund my retirement?” A second question is, “Can I afford not to have the cash flow generated from my business?” The Wealth Planner helps answer these specific questions.

Working together, the SEP and Wealth Planner determine what the business owner needs to retire or sell, the value of the current business, and what it would take to get the company to a greater value if the current value is not where the business owner needs it to be to transition. The sale of a business is often the most significant economic event in the business owner’s life. Having a plan regarding what to do with the influx of cash is paramount. Unfortunately, when a plan is not in place, the windfall effect can occur after the cash is transferred. Having a plan of where to invest, gift, and spend the proceeds from the sale of the business is critically important. The Wealth Planner will also help with these plans.

• Business Broker/Investment Banker: Depending on the business size, a business broker or investment banker is added to the team. In a terrible analogy, the business broker/investment banker is similar to the seller’s real estate agent when selling a house. However, a business broker/investment banker’s deliverables are much more extensive than a real estate agent. Their knowledge and expertise is extremely valuable. Finally, the business broker/investment banker is the connection to all the buyers looking to buy a business. The business broker/investment banker handles finding the right buyer, manages the relationship, and helps negotiate in the business owner's best interest.
• Specialized M&A (Merger & Acquisition) Attorney: No matter which plan is adopted, the transaction will require several documents to be drafted, reviewed, and negotiated. Therefore, a specialized M&A attorney is extremely valuable to the team. The attorney will work with the buyer's attorney to help finalize the deal and work through all the legal paperwork. The M&A attorney will also help navigate all the legalese and negotiate the legal terms.
• CPA: The sale of a business is often the largest taxable event in the business owner’s life. Therefore, a CPA who understands both the business owner’s individual and business tax situation is vital. The CPA will have an important role throughout the transaction.
• Estate Planning Attorney: A solid estate plan is essential when selling the business. As a business owner, you want to protect and direct the proceeds from the sale as it represents the blood, sweat, and tears of all your years of hard work. An estate planning attorney will create a plan just for you.

Part 3: The Succession/Exit Planning Process

The succession/exit planning process includes five key steps: 1) Planning for an Exit, 2) Gathering the Team, 3) Implementation of the Plan, 4) The Transaction, and 5) Post Transaction.

Planning for an Exit

Congratulations, it is time to start considering what is next in your life. At the highest level, there are several different paths: 1) stay/maintain where you are, 2) plan for an internal exit where current employees or family members take over the business, 3) plan for an external exit where an external buyer purchases the business, or 4) install a management team that will run the business while you maintain an ownership stake.

The decision on these different approaches depends on your personal goals, values, and plan. That is why planning for an exit is so vitally important. A team like ours at ABA will first work through a discovery process to fully understand your vision, goals, values, and the best options for your situation.

Another step in Planning for an Exit is to start putting together foundational documents, documenting systems and procedures, and analyzing the business's financials in preparation for the due diligence process. The due diligence process can be a second full-time job, so any efforts at the beginning will help in the end.

Gathering the Team

In conjunction with the discovery process, you and your team of advisors around you and have discussions to make the best plan possible. As discussed in the previous section, some important questions, such as your required financial number for exit, will be answered. This helps us determine the best plan for you and what it may take to get there.

Implementation of the Plan

Once the plan is created, it’s time to implement it. Often, it is decided to work on a few core value drivers over a 6-month- to 3-year period that will increase the business's valuation and, in turn, increase the company's purchase price. This time frame allows for business growth and helps get everything in place when it is time to go to sale.

The Transaction

Selling a business is similar to buying a house but is much more complex and time-consuming. If an internal or external exit is decided as the best course of action, the transaction phase begins. This involves finding the right buyer, negotiating terms, conducting due diligence, and finalizing the sale. Your advisory team will play a critical role during this phase, ensuring that all legal, financial, and operational aspects are handled meticulously. The goal is to achieve a smooth transition that aligns with your financial and personal objectives.

Post Transaction

Your journey doesn't end after the transaction. The post-transaction phase involves managing the proceeds from the sale, transitioning to your new identity, and possibly staying involved with the business in an advisory or consultant role. Your advisory team, especially your Wealth Planner and Estate Planning Attorney, will continue to support you in managing your newfound wealth and ensuring your legacy is preserved.

About American Business Advisors

American Business Advisors is a trusted advisor who can walk you through selling your business. One of our services is the Succession/Exit Planner. We take a comprehensive approach to ensure that you are ready, knowledgeable, and have the right team in place to make this critical decision. We will walk you through the initial conversation of selling, preparation, and the plan's implementation. We can help with it is an internal/external exit or putting a management team in place.

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The views and opinions expressed in this guest post belong to the author, who is responsible for its content, and do not necessarily reflect the views of Telios Law PLLC.