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The Number One Thing You Need to Do Before You Try to Sell Your Company

The Number One Thing You Need to Do Before You Try to Sell Your Company

I often meet with business owners who are several years away from wanting to sell their company.  When they ask what they can do to get ready, my first answer is:  Start a relationship with a financial advisor and do some planning.  They key question you want answered is this:  “How much do I need to sell my company for in order to support my lifestyle through retirement?

Once you have that answer, meet with an M&A advisor and find out how the market is likely to value your business.  The value of privately-held companies is difficult to determine, since there are few publicly-announced deal metrics, but any M&A advisor should be able to give you a range within which they believe your company would sell.

Once you have these two key numbers, you’ll know if there is a gap between how much you “need” and how much you’re likely to receive.  Often, business owners discover that they “need” more than they can expect to sell the company for.  If that’s the case for you, here are your options:

  1. Hold onto the company for a few more years. That has several benefits:
    1. It enables you to pull more money from the earnings of the business and invest it elsewhere (retirement accounts, for instance), so that you have a larger nest egg to start with, and thus can afford to sell the company for less.
    2. At the same time, if you’re growing the business, then you’re likely increasing the value of the company so that when you go to sell it in a few years, it’s worth more.
  2. If you’re totally burnt out and can’t stand the idea of continuing to run the company for a few more years, then you also have a few options:
    1. Work with your financial advisor and your spouse to figure out where you can cut spending – both now and into the future.
    2. Or if that’s not going to fly, then you might consider hiring an interim CEO to run the business for you for the next five years and position it for a sale. Yes, it’ll reduce your company cash flows in the short term, but it may ease your stress and help you to hold on until the company’s value is sufficient to meet your retirement needs.

If you need an introduction to a financial advisor who can help you figure out how much you need, or an interim CEO to run the business for you, email me, and I’m happy to make a referral.


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