According to the US Bureau of Labor Statistics, only 21% of new businesses survive for 20 years or more. If you have built a business that has endured, you have much to be proud of. But along with that pride comes a crucial consideration: your exit strategy.
While it’s natural to focus on growing and managing your business, the earlier you plan your exit, the better. Waiting too long to prepare for the sale of your business can cost you opportunities and potentially reduce the financial rewards you’ve earned over the years, especially if industry conditions shift unexpectedly.
For many entrepreneurs, most of their net worth is tied to the company. Whether you plan to sell your business, sell and stay on with the new owner, or pass it on to family members, you will likely need to convert your sweat equity into investment capital to fund your retirement at some point.
Start planning early
The first step is understanding that selling your business is a long-term process, not a quick decision. You must integrate exit planning into your day-to-day business strategy well before you reach retirement age. This approach helps you focus on creating long-term value instead of short-term gains, which can translate into a higher sale price when the time comes to sell. For example, a long-term value approach in your business has owners focused on developing exceptional teams and improving internal operations. Both are attractive attributes to buyers while providing your customers with outstanding service levels.
Plan for the unexpected
It’s essential to plan for your loved ones, too. Suppose something unexpected happens, — such as a premature death or a serious illness — your business could be left in jeopardy. A well-structured buy-sell agreement, coupled with life and disability insurance, can protect both your family and your business. Discuss these arrangements with your advisers to ensure your work is safeguarded, regardless of circumstances.
Steps to take now for a successful business sale
If retirement is a few years away, there’s no better time than now to start preparing for the sale of your business. Here’s how to take the first steps:
Know your destination
Start by envisioning your retirement lifestyle. How do you want to spend your later years, and what income will you need to fund that vision? Financial planners can help you calculate the amount required to maintain your desired lifestyle, and your business’s valuation will likely play a significant role in that financial plan.
Assemble your dream team
Selling a business is complex. You don’t want to be in the dark about the process while prospective buyers are well-versed. To get the best value for your company, assemble a team of experts: a business attorney, financial planner, accountant, and business valuation expert. These advisers can provide valuable insights into current business trends, potential valuations, and what buyers will look for. They may also suggest improvements, like hiring a general manager to enhance operations if your hands are in too many key areas.
Follow through with your plan
Once you’ve met with your advisers and developed your financial and business strategies, it’s time to implement the plan. Mark Twain once said, “The secret of getting ahead is getting started.” This advice rings especially true when preparing your business for sale. Don’t delay-your future security depends on taking action now.