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Ready to sell your business? Take these steps for a successful transition.

April 3, 2018


As the baby boomer generation ages and the Gen Xers and millennials come of age and go off to do their own thing, many businesses owned by boomers are left without a natural successor. Many of these business owners are finding that their children and grandchildren simply do not want to take over the family business. The good news for them is that there are many other options. But no matter what type change an owner decides to embark on, planning well in advance is the key to a successful transition of the business. Following is an outline of steps to take when considering a sale or transition of your business.

Take a long look in the mirror

Are you truly ready, emotionally, to let go of the business? It has been your baby for years, so it’s understandable why it may be difficult to cede control and let someone else run the business. Make sure you have taken stock of what you will do in terms of hobbies or other interests to fill the void after letting go of the business. Too often, sellers think they are ready to let go but struggle to pull the trigger when the time comes. This can result in frustration, wasted time and money, and can be a huge distraction to the business.

Determine what you “need” for the business, not what you “want” for the business

Many sellers launch into the process of selling their business with a desired purchase price in mind. Often, however, those sellers have no idea if that sale price will be sufficient to fund their retirement and other plans after the sale. Before taking a business to market, the owner should take stock of their entire personal balance sheet, including all assets and liabilities outside the business, and future cash flow needs. A professional wealth advisor should be engaged to guide the owner through development of a complete retirement plan. Be clear about what goals and desires you have for retirement – a second home, education for children or grandchildren, travel, bequests to charity, etc. Once the full picture is put together, the business owner can determine how much they “need” to sell the business for in order to achieve their goals. That number may differ from what they “want” for the business or what it is truly worth today.

Do the right homework to determine what the business is currently worth

Now that you know what you need to get from the sale of the business, it’s time to take stock of the current state of the business and get a realistic professional view of what it’s worth. Many business owners rely on their gut feel or a “country club” value, based on nothing more than conversations with other business owners at “the club” who recently sold businesses. This is a risky approach and may not be realistic. The owner should consider engaging investment banking, transaction advisory or valuation professionals to analyze the numbers through a quality of earnings effort – at least at a fairly high level – to put a rough box around the cash flow potential and therefore the rough value of the business today. Having a realistic view of current value is key to a successful transition.

The current value falls short of my “need” – Now what?

Although disappointing to learn, it is certainly better to know if the value falls short before embarking on a full-blown sale process, rather than after a failed transaction. The owner can now focus on internal efforts to grow revenue and profitability, which will enhance the future value of the business. The owner may also consider turning the tables and seeking out acquisition targets to expand the business’ product line offerings or geographic reach. This extra time will also allow the owner to prepare well in advance of the actual sale. These preparations may include cleaning up historical books and records, building a base of externally prepared audited or reviewed financial statements, building data-supported projections with deeper details of revenue and profitability by product, customer, etc. This information will be important when it is time to go to market.

Great! – the current value of the business meets my “need”

Now that you know the value meets your need, and you are emotionally ready to sell, you can move full steam ahead. At this stage it is important for owners to surround themselves with the right team of professional advisors to achieve a successful transaction. This team should include an investment banking firm to market the business, a transaction advisory services team to perform quality of earnings work on the business and add deeper credibility to the numbers presented by the investment bankers, an experienced M&A attorney, and a tax advisor.

With thoughtful reflection, a clear goal, an accurate valuation and a solid team, you’ll be well prepared to transition your business and step into your new role as “former owner.”

To discuss strategies for readying your business for sale, contact your CSH advisor or Scott McRill. Based in our Cleveland office, Scott can be reached at 216.526.8125 or [email protected].

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a Clark Schaefer Hackett professional. Clark Schaefer Hackett will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.


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