Over the past two weeks, I’ve discussed strategies for transferring your business to family members. If you do not plan to leave your business to a family member, you will want to take steps to maximize its value upon a sale. When we ask our business owner clients what they plan to do with their business, more often than not, they shrug their shoulders and mutter something about someone selling it at their death…a spouse or trusted advisor. The truth is that none of these people are likely to be in a position to sell the business for its highest value. You are the person that intimately understands the business and it is you that is in the best position to develop a plan for selling the business. Now is the time to develop your game plan and here are some ideas to consider:
Selling during life. Often the best way to receive full value for your business is to sell while you are still active in the business. This usually allows you to receive the maximum value because you are there to assist with the transition. This does not have to be an all or nothing deal, particularly if you have key employees. By selling a minority interest in your company to key employees, you can create a loyalty that otherwise is difficult to achieve. They are now “owners” and will likely shun offers to work for competitors. You can also prepare them, both financially and management wise, to take over when you retire or die. Be sure to develop an appropriate “exit” strategy that will allow you to get their stock back should they cease to be employed by your business. “Minority” shareholders can cause you a lot of problems.
Selling at death or disability. It is not unusual for our clients to plan to work as long as they are able. If this is the case for you, consider the wisdom of developing key employees who would be capable of running the business in the event of your disability or death. One strategy would be to sell them a minority interest in the business now and begin involving them in management. Another strategy is to create a buy-out agreement in the event of your disability or death. These strategies help create a ready market for your business and provide an ownership path for your key employees.
The ‘No-Plan’ plan. At a very minimum, you should sit down and write out a plan for your spouse or advisor to follow in case of an untimely death or disability. List those people who you think are the potential buyers; outline who should run the company until a sale is completed; describe how to best determine the fair market value of the company; and any other details that you feel would be useful in helping to sell your business.
If you don’t have key employees who could take over your business, the obvious choice is a sale to a competitor. To receive the highest value, you should maintain impeccable records and systematize all recurring processes in your business. Start now developing those processes and memorialize them in a detailed operations manual. You’ll know that you’ve accomplished your goal when you’re able to take a 3-month vacation and the business runs fine without you.