Exiting your business at its peak might be difficult from a personal perspective, but it is also when it is at its most attractive for potential buyers. However, this is also an important factor to consider with regard to what to do with your proceeds.
Entrepreneurship is a thrilling journey marked by innovation, resilience, and the pursuit of success. As an entrepreneur, you have dedicated countless hours, energy, and resources to building your business from the ground up. There may come a time when you decide to leave what you have created, but are you aware of all the steps involved in exiting your business? Have you covered all the bases? We've taken the time to create a guide to help you navigate the process of selling your business
Selling a business is a crucial time to enjoy the benefits of your hard work and success. However, the path to a successful business sale is riddled with challenges, complexities, and critical decisions that can make or break the outcome. Entrepreneurs must understand the complexities of the process and navigate it confidently, with knowledge and strategic foresight.
Getting ready to take this step requires time and preparation. There are three crucial stages to selling your business:
Pre-sale stage: Explore your options and draw up your exit strategy
Exit stage: Prepare to sell your business by implementing your strategy and potentially changing ownership to optimize its value. Having the right advisers working with you throughout the sale process to ensure you do not lose value on the exit
Post-sale stage: After selling your business, you need to think about what comes next. This involves protecting yourself after closing the deal, deciding how to use the money you earn, and maximizing future opportunities.
Getting your business ready for sale is a long journey involving your entire legal and accounting team working out the best outcomes post-sale for you and your employees. Once you’ve done the due diligence and put everything in place, it is time for an offer to appear. To get the best deal for your enterprise, business valuation is key.
Finding the right partner for the right price
How do you accurately assess whether the value you think you can achieve for the sale of your business is enough to meet your personal objectives? This can be done by assessing the value of your business against similar companies and considering how much money you will need after the sale. After all, you want to live comfortably after you step down.
“There is of course always a risk that sellers don’t generate enough money from a business sale to meet their lifetime financial objectives, and that this hasn’t been properly assessed. One of the reasons we run cash-flow modelling is to show clients in detail how their financial assets may look based on their planned objectives and how they plan to spend money. This gives a glimpse as to what their life might look like in the future and how secure their financial position will be in years to come” suggests Gareth Jenkins, Director at James Hambro & Partners.
They create a model forecasting likely changes to an individual’s personal net worth based on a number of assumptions, including importantly what annual expenditure might be. This leads to further planning considerations such as how to best structure the client's wealth, how to manage risk and potential future estate planning considerations.
Time is key
How to know when to sell your business? It’s difficult to say since it depends on the type of business and the location, but many sales brokers recommend analysing the market environment as a first step. Viking, a US-based company specialised in mergers and acquisitions recommends analysing the local economy (is there a demand for a business like yours? Is your city growing?), market conditions (is your economy in a recession or growth period?), Industry trends (for instance, it might not be a good idea to sell your construction business when the housing market is down) and does the market environment favours buyers or sellers.
When the financials are trending upwards, sales are booming, the team is strong, and demand is high, it is often the best time to sell your business from a valuation perspective. Exiting your business at its peak might be difficult from a personal perspective, but it is also when it is at its most attractive for potential buyers. However, this is also an important factor to consider with regard to what to do with your proceeds.
When deciding what to do with the proceeds of a sale, Rosie Bullard, Portfolio Manager and Partner at James Hambro & Partners, advises setting out a financial plan as to how the excess proceeds from a sale can be invested. Investing too quickly without a long-term plan can result in an undesired outcome, particularly if markets go through a period of weakness shortly after investing.
Is it the right time for me to sell my business?
So, the market’s time needs to be in consideration, but how about your time? Is it the right time for you? Maybe the question you should be asking yourself is: Why are you selling? What are the reasons for selling? Do you want more free time or would you like to reinvest that money somewhere else? This is something Stewart Sanderson, Senior Private Client Director & Head of UK Private Clients at Brooks Macdonald, always asks his clients at this point: “So, you’ve done your due diligence, you have your business plan and are ready to sell, but you might ask yourself: Why am I doing this? Is this the right time to sell? Is this the right buyer? Is this going to be a merger? And if someone comes in, do I want to work for someone else? You might need to rethink your role after the sale, or even ask yourself: Do I need a job? It all comes back to that plan and understanding what you have and what you need for your future”.
Life after selling your business
The exit may be complete, but have you considered what comes next? How can you ensure a smooth transition of ownership and maintain the long-term success of your business? What steps should you take to support your employees and preserve customer relationships? All wealth managers agree on the need to plan every step from the very beginning, even what comes next.
Sanderson suggests discussing with your financial adviser to determine your goals and timeframe for making an informed decision. To make a decision and assess your risk tolerance, consider whether you should invest, do charity work, or take a break. Asking yourself these questions will help you determine the best course of action. “Do your due diligence, make sure you've got a strategy for the moment the money comes in, which is a short-term thing, and then take your time to work out what you want to do with the benefit of cash flow and of financial forecasting and expect to go on a journey”.
Ann-Marie Atkins, managing partner at Evelyn Partners, concludes that if you are thinking about giving some of the money away, you also need to consider where that's coming from: your net income or from another form of financial structure. “You can consider if you are able to give away capital/growth or indeed money to charity – this could include setting up your own charitable trust. This could carry additional tax benefits and you set the criteria as to how people can qualify to be able to benefit. Cash flow modelling can be used to determine how much you can give away pre or post-sale and still benefit from tax reliefs. This will also help you decide if you can afford to make such changes".
Your next steps could benefit many, so talking to your financial adviser early on will show you all the possibilities this sale can benefit you and others.
Remember, selling a business is not merely a financial transaction; it represents the culmination of your entrepreneurial legacy. By planning, considering, and understanding the process, you can confidently sell your business and create a path for future success.
