When that wire hits your bank account everything will change. Many believe this to be true when they sell their business. From my experience selling your business is often one of the most anti-climatic events for business owners. I would go as far as to say that for many owners it spins them into a place that feels like a rudderless ship in the ocean. Searching for the next big thing. Well, I am here to tell you that you can avoid all of that by answering 3 easy questions.
In this blog, we are going to break down mistakes to avoid while selling your business. Already sold your business? Skip this blog and check out the blog we wrote on how to manage wealth for business owners after selling.
The Guide to Selling Your Business
Yes, all your problems can be avoided by answering these 3 easy questions.
Here they are.
What outcome are you looking to achieve?
How will you spend your time?
What to do with the money?
Now that you know the questions. Ready for the answers?
Lucky for you we have helped countless business owners answer these questions and enjoy a successful exit. Let’s check out the most common answers we see from business owners.
What outcome are you looking to achieve?
When there is a big change in life I always encourage families to think about the outcome they are looking to achieve. Outcomes allow you to tune out the noise and make the situation personal to yourself.
It helps you tune out the investment banker telling you it’s a great multiple.
It helps you tune out the attorney telling you these are great terms.
It helps you tune out the CPA telling you that this deal will save you millions in taxes.
All of the examples you just read are not outcomes. These are attributes of a deal.
These are outcomes.
I want to spend more time with my family.
I want to secure my family's financial future.
I am tired of going all in and want to take chips off the table.
These outcomes we can solve with the attributes of the deal. Many people work in reverse order.
Let me show you.
A private equity company sneaks into your inbox on a regular basis for 2 years. Probing to get enough information to provide you with an unsolicited LOI. It arrives after a long quarter of problem-solving where you are left exhausted.
After a quick review of the offer letter, you see a line that notes a 10x multiple. Your buddy just sold for 6x and immediately you are intrigued. After a quick review of your EBITDA on QuickBooks you determine this private equity company is going to write you a check for $20,000,000.
Wow. That is a lot of money I should probably give them a call.
This is not the best approach to selling your business.
Let me show you how an outcome-based approach can help.
After a long quarter full of problem solving you are left exhausted. You start contemplating what you want your life to look like moving forward. Quickly coming to the conclusion that the things you say you value are getting overlooked.
Your Spouse
Children
Community
But you also love what you do and have no desire to retire. This leaves you thinking is there a way to keep doing this and get back my time?
After meeting with Moment Private Wealth to review the options to achieve this outcome it becomes clear that a strategic partner could help you get the outcome you desire.
The decision is made that we need to focus on the right strategic partner vs the highest price tag. After all the outcome you want to get has less to do with the money and more to do with how you are spending your days.
I will let you daydream about how this story ends.
The goal in this story is that you understand approaching selling your business the traditional way is unlikely to get you the outcome you desire. You need to plan for the outcome you want.
How will you spend your time?
You can always make more money but you can’t make more time. I have yet to meet a successful business owner who doesn’t ruthlessly take care of their time.
It is the most valuable resource you have and you must treat it accordingly.
You have spent your entire life building your business. Day in and day out showing up early and staying late. Spending all of your TIME in one place.
Now you magically have nowhere to go and all the time in the world. This often leaves business owners in a tough mental state.
One day they are problem solving and the next day they are golfing 5 days a week. There is only so much golf that one person can play. So how do you avoid this trap?
Coming up with a plan prior to selling the business.
Let's look at a plan we recently implemented for a business owner.
This owner decided that they wanted the outcome of their business sale to be giving back to the community and buying a property for his family. Legacy was of the utmost importance.
Now we needed to whiteboard what “giving back to the community” meant. For them it meant serving on two boards of charities they were passionate about. Well, they weren’t on those boards today. This became a project they worked on prior to selling the business. Let’s make sure you can get on the board and spend time doing things you want to do with those charities. Their eyes were opened when they started meeting with people at the charity and realized quickly that there was money being used in ways they didn’t agree with.
Back to the drawing board.
They found two additional charities to get involved in that they loved. Turns out this took an entire year for them to work through this process and were grateful they didn’t sell their business before doing the proper research.
The farm was an easier project.
Why?
They already owned the land and there was perpetual work that needed to be completed. Currently, they were outsourcing the majority of the work but they planned to move to doing it themselves.
With time being the most valuable resource you ought to plan for how you will use it.
Don’t jump into a deal without knowing where your time will be spent.
What to do with the money?
Shockingly most families struggle with what to do with the money. I firmly believe this is due to past experiences.
You have heard this disclaimer in investing. “Past performance doesn’t guarantee future results.”
Well, the opposite is true for past experiences with money.
“Past experiences with money will predict future decisions with money”
Let me show you what I mean.
This client grew up in the 70s in a middle-class family. Both parents worked jobs to make ends meet. Although there was always food on the table there was never extra money lying around. Family vacations were road trips not first class.
Now that you have $20,000,000 in your bank account you don’t magically become good at spending money.
Rather we have seen the reverse be true.
Fear that you will blow it all drives your decision-making.
This is not a good outcome which is why we need to plan in advance and solve the math equations that are important to you. Remember what is important to you may not be important to your buddy who just sold his business. Just because he wants to charter a jet doesn’t mean that you should do the same.
Planning for the money will give you confidence during your deal. Too many times business owners sell their business hoping that the money they will get will be enough. Sometimes it is and sometimes it isn’t.
We help clients come up with a number. That number encompasses all of the outcomes they hope to achieve.
- Giving their kids each $250,000 today.
- Paying for the grandkids college.
- Giving $1,000,000 to charity
- Spending $50,000 a month to live their ideal life in retirement
- Paying for health insurance before they reach Medicare at 65
All of these are math formulas that we can solve for you. Once we solve each math formula we add them together and subtract projected taxes and this gives us our north star. The north star is the amount of money you need to accomplish your outcomes.
This gives crystal clear direction for how to approach your deal. It will give you the confidence to decide which deal is the right deal for you.
Selling your business can be the highlight of your professional career. From experience the best way to make it that is to make sure you answer these 3 questions before you plunge into selling.
What outcome are you looking to achieve?
How will you spend your time?
What to do with the money?
There is no plan that is right for every owner, but there is a perfect plan for you.
Not sure where to go from here?
Schedule a call with our team here.
Selling your business can be exciting, lonely, and challenging all at once. Connecting your personal goals to your finances can be challenging alone. Business owners turn to Moment Private Wealth when they are looking for a financial advisor who has walked in their shoes.
If you are a business owner who is looking to find a financial team that specializes in you, schedule a call, and talk with a Moment founder.
Not sure what questions to ask, check out this video on 10 questions you should ask when interviewing a financial advisor.
Get in Touch With An Advisor
Frequently Asked Questions
Here are some answers to questions I received frequently about this topic.
How much is my business worth? The value of your business is going to be determined by a number of factors. This will be determined by the amount of profit or EBITDA that your company generates on an annual basis multiplied by an industry multiple.
Example = Profit x Multiple = Business Value
$1,000,000 x 5 = $5,000,000.
How to sell my business? Selling your business is done best through an intermediary. These are financial professionals who help market your business. Depending on the size of your business this professional will be a business broker or investment banker.
How much in taxes do I pay on my business sale? Businesses are taxed based on the terms of your deal. With the proper structure, deals are often taxed at long-term capital gains rates. These rates range from 0% - 20% in taxes.
What is the cost of selling my business? The size of your transaction will determine the cost of selling your business. Intermediaries charge 5% - 10% of the transaction value to market and sell your business. They are worth their weight in gold.
Who is going to buy my business? The buyers of business vary widely based on industry and company size. The most common buyers are strategic buyers and private equity. Strategic buyers are competitors in and around your industry who want to own your company. Private equity buyers will look to own your company for a period of time before reselling it at a higher price.
*Moment Private Wealth offers information on tax and estate planning that is general in nature. Tax and Legal advice are not provided by Moment Private Wealth. Consult an attorney or tax professional regarding your specific legal or tax situation.
