Selling your business? Here are 3 options & the steps you can take now
If you are a business owner who is ready to move on from what you worked so hard to create and build, you will be faced with the ongoing question,” what is your next step?”.
The three most common actions you can take are:
Sell your business outright to a third party and retire.
Transition your business to the next generation of family members.
Find a strategic partner who can invest in your business and help you take it to the next level.
In all three cases, having a trusted professional financial advisor by your side is important. By working with the right professionals, you can continue to use your time to focus on running and growing your business. Meanwhile your trusted advisors can help you capitalize on tax and financial planning strategies unique to your situation while ensuring you can maximize the value of your business.
1. Selling your business outright
If you are at the point where you want to sell your business, there are a number of steps you can consider:
It is important to build up the financial position of your business for you to get top dollar. This means shoring up the balance sheet and income statement so you can demonstrate a solid history of EBITDA and growth. As much as potential buyers will look at the future growth of your business, the conversation and valuation of your business will depend in its historical performance.
Work with your professional financial advisor before you sell your business so that where applicable, you and your family can take full advantage of the cumulative lifetime capital gains exemption (LCGE) on the net gains realized on the disposition of your qualified small business corporation shares (QSBCS). This may involve the creation of a family trust, a holding company, and the reorganization of your business share structure. Moreover, your professional financial advisor will work with your accountants and lawyers so that your business attains the criteria needed to own eligible QSBCS that qualify for the LCGE.
- Work with your financial advisor to help you develop a holistic financial plan that considers all of your goals. This would include:
- An investment management review that examines your willingness and capacity to take on investment risk that is needed to achieve to your goals;
- A retirement planning analysis to ensure you can live comfortably in your golden years;
- A solid tax plan to ensure you are minimizing your taxes on the sale of the business and for the investments you will have;
- An estate plan so that your wealth is transferred in a tax efficient manner and according to your wishes.
Throughout this process your focus should be on continuing to run and grow your business. This ensures you can maximize the value of your business, and leverages what you do best. Your financial advisor will make sure you are on track with your goals by applying their project management skills. Confidentiality and efficiency throughout the process is a must. Use a secure method of sharing financial and confidential information with potential buyers.
2. Transition your business to the next generation of family members
Transitioning your business to the next generation will require similar planning to that of selling your business outright, with some of additional steps for you to consider:
It is important that the next generation of family members who will be leading the business have been prepared for the positions you want them to lead. A careful review of their current skill may identify gaps to be addressed with mentoring and training along with a sound business plan will help ensure that they are ready to take on their new roles.
It will also be important to ensure that your chosen successors are committed to being there for the long haul. Identifying your successors early on, along with open dialogue and trust are critical. By ensuring their commitment, you will ensure stability to your clients and employees while creating a positive work environment which will help through the transition.
Alternative means of compensating the children who do not want to be part of the transition process or do not have the required skill set should be considered during the planning phase to avoid any future family conflicts. Transitions can be challenging. Therefore consider getting outside talent or trusted long serving employees to help your family with the transition while not overlooking opportunities to take your business to the next level.
Your role during the transition phase as well as after completion should be clearly defined along with your financial expectations of the business under the next generation leadership.
3. Find a strategic partner that can invest in your business
If you would like to find a strategic partner to invest in your business, your financial advisor can also help you plan to ensure it is completed in a tax efficient manner. In addition, your advisor can work with you to evaluate your business needs while ensuring that you bring in the right professionals at the right time to help elevate your business to the next level. In this scenario you will want to consider the following:
Develop a profile of the ideal person that you would choose as your partner. This could be a financial or specialized partner, or a combination of both. You should consider both technical and personal characteristics in your determination of the profile. Consider what percentage of your business you are willing to give up to attract the right strategic partner. Present yourself and your business to potential partners as something that they would benefit from. This requires creating a win-win scenario for all parties.
Always be prepared to choose your negotiating style. Will you lose a battle to win the war? Will you compromise and meet in the middle? Might you compete to the bitter end? Make sure to choose a style that best fits the circumstances and plan carefully.
When selling your business you are encouraged to work with a trusted professional advisor with experience in this area in order to maximize the value of your business and allow you to reap the rewards from your vision and hard work. This is truly the magic formula!