Selling a business and transferring ownership is essentially a financial transaction, but that doesn’t mean it isn’t an emotional one as well. Whether the owner is selling a family business with history and tradition behind it or a business that he or she has built, grown, and nurtured, there’s more than money on the line.
In my professional life, I have not only sold my own business, but I have worked with others as they have made their transitions. I know first-hand what it can mean to sell a business. A person’s business is part of their identity. Besides all the hard work and hours in the office, the business has grown through the “blood, sweat, and tears” of the owner.
When it comes to selling the business, you want to make sure that your family, your customers, and your employees continue to be well cared for as the company changes hands. Yet, you also feel like you are giving away a part of yourself.
In order to make a sound business decision, some of your emotions need to be set aside. And there are ways to make this happen.
First, assemble a team of trusted advisors. These professionals might include your CFO, a mergers and acquisitions attorney, your CPA, an investment banker, and a firm tasked with business valuation that has expertise in your industry. Once this team is in place, make sure they understand your objectives, then listen to their advice, and don’t hesitate to ask questions. In order to be comfortable with your final decision, your team of experts needs to understand that this transfer of business ownership is more than just what’s best for you and your family financially.
When I sold my own business, of course I wanted the best financial outcome, but I had two other important objectives as well:
- First, I wanted to take care of my employees financially and make sure that they would still have jobs under new management.
- Second, I wanted to be certain that my clients would continue to be well-served, and that the transfer to a new owner would be seamless and transparent.
Once I knew these two objectives would be met, I could concentrate on the financial aspects of the sale. You will have your own objectives to consider as you work through your decision.
With the help and advice of your team, you will have an idea of the price set for the sale. Of course, you need to understand that your asking price may not be the final sale price. As happened in my case, the buyer will probably make a counter-offer. It helps to remember that this is a financial transaction, and, even though the business is personal to you, their probable lower offer is nothing personal; don’t be offended by a low counter offer. With your advisors, you should already have determined how much you are willing to reduce your selling price (if at all). You and your buyer can probably come to an agreement that makes you both happy. If not, it’s time to reevaluate, reassess, and start over.
It’s important to understand any tax implications of the sale. Your CPA, attorney, and investment banker can offer advice on the optimal sale method, taking into consideration your circumstances and your objectives.
In choosing the best person to negotiate the sale for you, there are several personal characteristics to consider: your representative should have good interpersonal skills, be able to think fast and adapt to changing scenarios, be determined and strong-willed while still being diplomatic and tactful, and have self-confidence partnered with humility. Choosing a representative with expertise and experience in negotiating the sale of businesses, particularly in your specific type of business, is invaluable.
In my current role leading West Shore Bank’s Wealth Management Department, I recently had the opportunity to work with a client as he prepared to sell his business. Together we organized and consolidated all his finances so that we both understood exactly where he stood. We then brought an investment banker to the table, and, with his insights, found that the value of the business was actually double what the owner had originally thought. Instead of the owner’s estimate of three million dollars, the business was actually worth six million dollars. My client and I then ran projections and confirmed that, with the sale of the business at its new valuation, he could have a more comfortable retirement than he had ever anticipated.
Another piece of advice that is perhaps the most difficult to heed is this: be patient. Remember the moral of the story of the tortoise and the hare. Slow and steady wins the race.
Once you have arrived at the finish line, you will feel comfortable that you have made the best decision for yourself, your family, your customers, and your employees.
David Ellis is a veteran financial services executive, author and business owner. As senior vice president of West Shore Bank’s Wealth Management unit, he’s committed to providing exceptional client-focused services and helping business owners achieve their goals. Contact him at [email protected] or (231) 728-2418.