Five Insights for Business Owners Considering a Sale
The natural economic cycle of growth, downturn, and recovery often spurs merger and acquisition activity at different points. On the recovery side of the pandemic, we are seeing those trends multiplied by the unique conditions of these times: excess liquidity following pared-back activity; buyers looking to get ahead of upcoming growth; a hot market that has prices increasing; and owners more open to selling after a challenging year and time to reflect on their life goals.
For owners who are contemplating a sale, either now or at some time in the next few years, here are some things to think about and plan for:
Valuation can be especially challenging
Determining the value of a business is always tricky, but especially now as the economy recovers. A business may be flush with cash after a year of reduced activity, or operating with depleted reserves keeping the doors open. Some may be seeing a resurgence of interest, while others may be facing headwinds as customers have found alternatives. Turn to valuation specialists for a realistic starting point. Otherwise, you may set your bar too high or too low.
Consider the qualitative effects of a sale
Selling a business affects more than the owner. Consider your other stakeholders, what you expect for them, and how important your legacy is. Are you OK with your business being folded into another business, or do you want a buyer who will keep the name? What future do you want for employees or customers? These questions are about more than money, so think about what you want before entering negotiations.
Begin with an ending in mind
Updating succession plans is a good exercise any time, and one many businesses tend to put off, but it’s especially helpful if there is a sale on the horizon. Talk with your advisors and start to build a picture of your ideal transition. Would you like to sell to an employee or group of employees? Are you comfortable selling to a competitor or an investment group? Would you accept a lower bid if certain conditions are met? A plan puts you in the driver’s seat and opens options for action, instead of being reactive.
Don’t forget the impact on you personally
As an owner, selling your business will create a ripple effect in your personal finances. When considering a sale, you should be working with an estate planner and tax experts every step of the way. There are many financial tools available and ways to structure a sale that can have a profound impact on your bottom line for years to come.
It’s never too early to start taking steps
Whether actively considering a sale or just thinking, it’s especially important this year to sit down with your advisors. Business models have been shaken and reinvented, so revisiting projections and cash flows can help you now and help you get a better idea what your business is worth going forward. Even if you think a sale is five or more years away, there are steps to take today – and if a sale is coming sooner, you don’t have a moment to lose.
As a business owner, the best thing you can do is build a team of experts you can trust. That’s doubly true when thinking of a sale. Most owners have only bought or sold a business once, if ever. Alerus advisors who experts in finance and business strategy. They have seen what works for countless businesses, and are tied into networks of other specialists you’ll want on your team. Come see us today.