One of the great challenges in wealth management is counseling around enhancing and realizing the value of what is often the bedrock asset of a client: his or her business or professional practice. Locked into the going concern of a business is a value that, when realized as sales proceeds, provides liquidity and capital that has been the client's hope and dream. Maximizing and achieving this ultimate success is best assured when done out of strength a process that starts well before the sale date.
Motivations behind the sale of a business are many and often complex. While portfolio liquidity for retirement years may be one, reducing risks concerning the future capabilities of the company, industry and employees may be another.
Risks inherent in business ownership also take on greater alarm as a client approaches an age where he or she would like to avoid the possibility of business retrenchment or other risks of financial liability. Recognizing these economic and life cycles and acting on them in the years before they happen are among the most important determinants of how successful a sale may be.
Counseling to the decision for a business transition to provide liquidity requires addressing other objectives for the business owner. Considering the needs and abilities of children who may be in the business is of critical and emotional concern and provides planning opportunities. The security of loyal and capable employees is also a factor that may affect the process. Recognizing these factors at the outset will build the conviction of the owner to a considered strategy to sell.
And that's the shift in perspective that a business owner must have in this stage of wealth management a strategic plan for the sale of the business. There are many steps to execute here, and many involve strengthening the business and addressing issues, possibly deficiencies, that have been allowed to exist for years.
A three-year window for accomplishing the sale of a business is ideal. Again, this is done out of strength, where there is no compulsion for the sale, but rather a desire to transition to a next stage of life. Let's examine some of the most impactful actions that a business owner can take to realize this goal.
Assessment of Threshold Constraints
Consider constraints for a sale. This usually involves restrictions placed upon the business by contract or relationship. For example, are there important members of the family involved who would need to agree to the sale or would want to be a purchaser? Are they viable? Are there contracts in place from vendors or customers that would inhibit the sale?
What Will the Buyer See?
This is another critical analysis to make. Looking from the inside out and then back into your business is a very difficult perspective for the seller to take.
While you know many of the weaknesses of your company, our own sense of self sometimes prevents as honest an introspection as is necessary. The buyer will have no such difficulty. While your problems and issues may not be many, recognizing issues in your business or industry is a critical advantage in a sale. You will have far more credibility in addressing the issues, showing a plan for accomplishing a change maybe a technology buy or a marketing change, for example.
What is the Culture of Your Company?
The culture of a company is of critical concern to a buyer. How he or she perceives the company will adopt new owners, whether the company is to continue to run as an independent unit or incorporate into another business, impacts the valuation and practicality of a purchase.