Considering selling your business? If the answer is yes, there are many financial and non-financial considerations to take into account when you are exploring your exit options: In this article, we'll look at these considerations and discuss how to determine which is the best exit strategy for you and your business.
When considering your selling options, the financial considerations are often seen as the most important. Most business owners believe that the higher the sales price, the better the deal. But most business owners have never determined how much money they really need to net from their business sale to achieve their financial goals. The key here is net, what the owner “takes home” after transaction fees and taxes. Taxes and fees can gobble up a major portion of your business sale proceeds, but unfortunately, due to a lack of time and planning, these items are not usually considered or calculated far enough in advance.
Don’t underestimate the importance of weighing the non-financial aspects of each transfer option. If they’re ignored, they can contribute to “seller’s remorse.” Seller’s remorse most often occurs when owners have no plan for what they will do after they’re no longer working in the business. As a result, former owners often feel irrelevant and have no identity, which can result in a sense of emptiness and regret.
Questions to consider include:
- What are your personal post-transition plans?
- What do you really want to accomplish with this transition?
- How will each transition option impact and affect employees, family (those involved and not involved in the business), customers, community, and your legacy?
- What matters most to you?
These questions can only be answered by you, and it takes time to figure it all out.
Determining Which Business Transfer Option is Best for You
If you plan ahead, you may have several different selling options available to you. It is important that the option you go with is aligned with your financial and non-financial goals in order for you to be happy with the outcome.
If you are considering selling your business, you may be under the assumption – held by many small business owners – that selling to a third-party buyer is your only option. It may not be. A third-party sale can be the most difficult to achieve and may not satisfy your objectives.
There are two general categories of business transfers – internal and external. “Internal” refers to selling or gifting the business to an insider, such as key employees, managers, or a family member involved in the business. “External” refers to selling to an outsider, such as a competitor, customer, or investor.
It is important to understand that different transfer options have different transfer values, as well as different fees and taxes. There are pros and cons to each type of transfer and assessing the different options for suitability or how they will either accomplish or not accomplish your goals is a crucial step in planning your transition. The more time you give yourself to plan the exit from your business, the more options you will have.
In upcoming blog posts, we will discuss the different exit options – both internal and external – that are available to you.