If you are a business owner and retirement is near, you may consider selling your business. While it may be a sad day letting go of a business you have worked hard to build up, the business’s sale can leave you with enough money to fund your retirement.
While you might hold the business to high value, you need to have an expert come in and value your business. This will ensure your asking price is reasonable, while also reducing low-ball offers.
Here are other things you need to take care of during your retirement sale:
Proper timing is important
When you sell your business, it is not enough to just have the right price. You need to time your sale so that you reach the right market at the right time. The business sale market is not always fertile ground, so you need to monitor the markets for one or two years to see when it peaks.
Selling your business at or near peak market means you can ask a higher price and make a faster sale. If you decide to sell on a whim, you may be entering the market during a downturn.
Entering a downturned market not only reduces the value of the business, but it can also mean the sale could take very long to go through. If you need the money on emergency, this is not an ideal situation to be in.
You have likely been planning your retirement for many years. So, it is essential to dedicate some of that planning time to planning your retirement sale. While you might still enter the market on a slump, you are more likely to enter the market at an ideal time to make the sale successful and worthwhile.
Know your worth
Your business is a highly valuable asset in your life. You have likely spent a lifetime building it up from the foundation, and you probably feel that your efforts warrant a high price. However, once you put your business on the market, you might have had many offers lower than your asking price, leaving you feeling undervalued and demotivated.
While some offers may be low-ball offers, there is a real possibility that you have valued your business too high and that the market price is actually lower. If you are receiving low offers, you should consider having your business valued by professionals.
Asking a friend or family member to value your business might lead to bias or conflict, but hiring a professional will get you a realistic idea of what your business is worth.
A professional valuation accounts for the market climate, business viability and success, as well as what the business’s assets are worth. This valuation gives you a real idea of what you can expect someone to pay you for your business and it is likely that this price will result in a faster sale.
Related: Business Valuation Tool
Have an advisory team
Selling your business is a huge endeavour. You need to have a team of experts available to you so that you can be sure the sale is going according to plan. Your team should have an accountant, transfer agent, financial advisor, and a lawyer.
Your team of advisors will help you sort through offers to make sure that the offers are real and viable. Your accountant should also help you get the business documents in order.
Having a lawyer and transfer agent in your corner will make sure the sale transition is smooth and fast. A lawyer will also be able to help draw up the sale contract to protect you as the seller, as well as the buyer. These documents are essential to transferring full liability to the new buyer so that if the business fails after selling, it is no longer your responsibility.
Financial advisors help you establish the true value of the business while facilitating the value of offers. The financial advisor can help you choose the best offer and make the most profitable sale. A highly profitable sale is one of the most important outcomes to have a comfortable retirement.
Stay focused until the end
Even though you are planning to hand over the reins, you need to stay focused on the business until the very end. You have worked on your business to ensure it is profitable and successful, and you want to pass it on to remain like this. Losing focus or pulling back could lead to business failure before or just after the sale goes through.
Staying focused on the business boosts buyer confidence because buyers can then see that you have full faith in your business right till the end. Losing focus could be highly detrimental to your sale since buyers might feel like you are setting them up for failure or no longer believe in the product.
If your loss of focus causes a decline in business profitability, you may lose offers or the sale might not go through. Staying focused increases your chances of getting offers in line with the business’s worth, and might result in a faster sale.
Plan your future
Running your own business probably took up a large chunk of your time each week. When you sell your business, you will no longer need to spend as much time working. You will need to find other ways to spend your time.
Video: Tips for Baby Boomers Selling Business for Retirement | Joshua Marks
Many people plan to use retirement to travel the world or experience a different life. However, travel can become expensive so you need to plan and think carefully to ensure your funds don’t run out.
Your retirement plan should be laid out and settled before your business sale even goes through. That way, you can modify the plan once you know how much money you will receive from the sale. You also need to make sure that your retirement plan aligns with family plans.
You do not want to be in a foreign country when your children or grandchildren experience milestones such as marriage or giving birth. So, when you plan your retirement, plan for flexibility of finances as well as time.
When you sell your business, you might feel sceptical about selling to competitor businesses. You may feel that a competitor will deliberately run your business into the ground or alter the overall goals to align with their own model.
To avoid this, consider selling the business to family. While your family might not have the same funds as an investor, you might feel more comfortable with the business passing down the generations. Selling to a family can be a great way to ensure profits and successes stay in the family.
However, when selling to family, you might need to accept a long-term payment process or selling for a lower value. This might derail your retirement plans in terms of financial viability, but you can rest assured that the business will be in safe and capable hands.
If you have enough money from all your years of investment and dedication, consider making the business an heirloom in which you only require the succeeding family member to pay a small portion of the business value on inheritance conditions such as ensuring the business is never sold outside of the family.
Detach yourself from the business
Your business will need to run smoothly even when you are gone. You need to demonstrate this to potential buyers and investors. To make sure your business can run without you, you should have a capable manager taking care of the bulk of the daily running.
When demonstrating the business’s ability to survive, you need to detach yourself to show that you are not the only driving force behind its success. However, this is not the time to retract your interest or lose focus on the business’s success.
Demonstrating that the business is successful without you at the helm can also convince investors to buy over your team as is. This is one way to ensure nobody loses their job in the sales transfer since the team you have running the business is seen as essential to business success.
Having a successful team pushing business profitability also makes it easier for the new owner, since they do not have to shop around for new employees.
Have the numbers ready
Preparing business documents is one of the most important parts of making the sale. Not only do you need to make sure that the books show a profit, but they also need to be accurate and up-to-date. Many buyers will want financial records from the last three to five years. Having these ready and on hand can help make the sale smoother.
You need to show business profitability, as well as average expense and average profit each year. A new buyer will not be interested in a business whose profits decrease each year, so you need to make sure profits grow from year to year.
You should also make sure that all legal requirements, such as permits and licenses, are up-to-date and relevant. New owners want a smooth transition, which can only happen if the documents allow for business to continue as usual with no breaks.
If you work in the food industry, you should also have the business certified for food health and safety, so that buyers can see that they are not buying into a risk.
Have a succession plan
When you prepare the business documents, an investor will want a list of staff and their duties. Anyone from the team manager to the janitor needs to appear on this list. It is not enough to write a list of names and their job title, so you need to explain in detail exactly what each staff member does.
When you make this list, as tedious as it may be, you need to upsell your staff. The buyer is not only buying an idea and some assets, but they are buying a complete workforce as well. You need to detail the value each staff member adds to the business as well as what value they can continue to bring after you leave.
You should include a succession plan with this list. Recommend to the buyer who should be the next manager, who should take on higher leadership roles, and how the hierarchy should progress after you leave. Giving a succession plan can increase buyer confidence and make the transition easier on them.
Don’t rely on the sale
You may have an idea of what you aim to get from the sale, but you should not rely on the sale entirely. Your retirement plans may cost more than what your business is worth, so you might need to get more money from other endeavours.
While the business sale might be the last step in your retirement plans, you need to be prepared for the unexpected.
A sale might take ages to go through and be complete, and this may set back your plans significantly. You should also be prepared for a lower sales income than you anticipated, in case the market is unfavourable at the time of your sale.
Have a backup plan for any negative outcome with your planned sale. While you are hoping for the best, anything could go wrong and it is best not to be caught off-guard. Making sure you have backup investments, backup plans, and backup funds can keep you out of financial trouble if a sale falls through.
Preparing your retirement sale can be easy and straightforward, but there are many aspects to consider before closing the sale. Making sure you get what the business is worth is just one small part of the sales process. You also need to ensure that you set up the future owner for success.
Making sure there are other plans and options in case something goes wrong might make you feel like you lack confidence, but markets can be unpredictable and people change their minds. Being prepared should be your priority when you plan to settle into retirement.
Leon Collier is a blogger and academic writer from the UK who writes about business management, finance and economics. He currently leads a team of professional writers at Essayontime. He loves reading old books and play tabletop games on Saturday with his friends. Follow him on twitter @LeonCollier12.