As a business owner thinks about selling their business, there’s a number of different components they need to think about well in advance of the actual sale of the company. Those considerations can be categorized into “internal,” aspects that relate to ensuring the business will be operating as efficiently and effectively as possible to be attractive to potential buyers, and “external,” which includes market conditions and timing of a sale.

At Regent Peak Wealth Advisors, these are five initial factors we like to discuss with business owners, ideally years ahead of a potential sale. The first four are “internal” to the business and the last one is “external” to the business:

1. It starts with the business owner. What will they do upon completion of the sale? Retire? Start another company? Could non-compete clauses have an impact on the plan? Are Board positions a possibility or an interest? Big picture, the individual needs to have a plan for what’s next. We sometimes see that a lack of a future plan can significantly stall or even cease the successful sale simply because the owner realizes they don’t know what they will do next.

2. In addition to, and associated with, an “activity” plan for the future, is a financial plan. What will a new lifestyle look like and how much will it cost to sustain? Will the new activities earn income or will the plan include living off of savings? How much will the business owner need to sell the business for in order to pursue the envisioned lifestyle? Is that sale price achievable?

3. Thirdly, we need to look at estate and tax planning. Is the business set up in a way to provide the most tax efficient sale? And is it owned in the right way to ensure that it passes through to the next generation of beneficiaries in an efficient and orderly fashion both during or after the business owner’s lifetime?

Fourth, we need to understand how to maximize the value of the business in the eyes of a purchaser, and that really comes down to focusing on the key metrics that a buyer wants to see within an attractive business. Buyers want to know:

• How diversified is the customer base?
• How efficient are margins?
• How do the margins compare to the best performing peers in the industry?
• How strong is the management team?
• How tenured is the management team?
• What kind of succession plan is set up for the management of the company?
• From a revenue perspective, how much is recurring revenue vs. one-time revenue that isn’t reliable year over year?

5. Coming at the sale from an external perspective, the business owner should consider who they want to be the purchaser of the business. Could it be an internal transfer who will move to employees? A co-business owner(s) and or management team? Is there an option to sell externally to somebody like a strategic buyer or a competitor in the industry that might see it as an opportunity to strengthen their position in the marketplace? Alternatively, a private equity buyer could be looking for a strong investment in their private market fund? Related to who to sell the business to is when to sell. If there is the luxury to control timing, there could be a certain time in the market cycle that could allow the business owner to obtain a maximized price.

These are only the top five considerations for selling a business, and within each topic, there are multiple options and pros or cons. Additionally, there are a number of professionals who need to be engaged to provide for the most efficient process along the way - financiers, a legal team and accountants, to name a few. Regent Peak Wealth Advisors’ Chief Financial Officer, Kevin Manning, CFP®, is a Certified Exit Planning Advisor who can act as a quarterback to provide for the most efficient process possible. Contact us today to learn how we can help design a plan for successfully selling your business.