Are You Financially Ready to Sell Your Business?

2018, 27 Nov | In Exit Planning, M & A for Entreprenuers, Uncategorized

Anyone can exit; however, exiting profitably takes both mental and financial preparedness and the right team on your side. Selling your company takes a plan.

As we examined in a previous Blog “Are You Mentally Ready To Sell” being mentally ready to sell your business is the first step to looking at our life’s work in terms of its reward and contribution to your future.

 

How to Know if you are Financially Ready to Sell

 

Know From the Pros

On the business front we measure financial performance by going “scoreboard” and reviewing our P&L monthly. From this we develop an informal basis for determining the value in our business.  When we decide to sell we may elicit an exit planner, business valuation expert or M&A transaction specialist to harden those numbers.

Equally important we should regularly meet with a personal financial planner. They can determine what we have and what it would take to maintain our current lifestyle and meet our exit and retirement goals.

Business and personal are vitally linked in our overall net worth yet typically are marshaled by separate advisors. The largest unknown in the process is the value of our business and the markets current appetite for what you have. Consequently this makes the process hard to predict for many companies and their owners.

I’ve personally gone through this process and “what if” scenarios. It is helpful to have an outside perspective. This helps us align our mental and financial readiness based on what the numbers tell us. It is equally important to have someone capable of narrowing the gap between actual value and perceived value.

 

Get the Real Numbers

I have only met a handful of entrepreneurs who have a realistic and thorough idea or analysis of the actual value of their businesses. We are optimists by nature and have built considerable sweat equity. This said, most entrepreneurs think their business is worth more than they really are.

Having someone that can bring these realities into greater focus.  Hence the ability to meet owner’s value gap objectives overtime can prove very valuable for many entrepreneurs. Where gaps exist, they can be filled with proper strategy, planning and the correct members on the team.

 

Financial Preparedness: Which Entrepreneur are you?

I have found in speaking with many entrepreneurs and being one myself, there are typically 4 types of entrepreneurs as it relates to financial preparedness and readiness to exit.

 

The 4 Types of Entrepreneurs

  1. Fiscally Fit: Well off – Future lifestyle not dependent on sale of business.
  2. Financially Illiquid: Not well off per se, most of worth tied up in the company, future lifestyle dependent on sale.
  3. Burnt-Out: Financial concerns are secondary / done with day to day – Find me a seller at the highest price I want out! (business is profitable)
  4. Risk Mitigater: Not well off, may be feeding the company. You need to sell ASAP to avoid further financial impact (business not profitable).

 

At first blush profitable exit opportunities may only exist for owners 1 & 2. However, exit events or partial exit events are possible for each of these from a financial standpoint. In-fact, given the individual needs of each owner the exits may look very different for each individual and company. Most importantly, value can be achieved with the right mental and financial assistance applied to the owner’s desired outcomes.

I suspect you will be able to easily identify which business owner or entrepreneur you are in the above list. You may even be able to assess your own mental readiness for making the transition. The next step is integrating the two in a logical assessment.  This should measure where you are and where you want to be.

 

Conclusion

In short, even though swinging for the fences may not be in your future you can extract additional value out of your company over time in a planned exit.

Anyone can exit; however, exiting profitably takes both mental and financial preparedness and the right team on your side. Therefore our advisors provide expert insight into differentiating our clients’ offerings. We position companies to achieve maximum value and the best strategic & cultural fit upon sale. Whether you’re interested in realizing liquidity, taking some chips off the table Merit Harbor can help. We believe in offering personalized, high-touch service through every stage of the M&A transaction process. Click Here for more information.