Posting by Eric S. Fletcher, CPA
Owning and operating your own business is in many ways the ultimate American dream. For many, it represents independence and the ability for self-determination. In a broader sense, it provides a meaningful way to contribute to society; providing employment and fueling the economy. Most business owners are passionate about their enterprises and devote the majority of their emotional energy and financial resources to building and sustaining their companies. However, to paraphrase the Bible, to everything there is a season and a time to every purpose. For almost all business owners, there comes a time when they have to make a decision whether or not to sell their company.
The sale of the business is a complicated matter, and the implications are wide -ranging and often impact the financial, personal, and family life of the seller. Following are five questions that may help you determine if the time is right for you to consider selling your business.
1. Will selling my business make me happy?
Most entrepreneurs live to work. The passion for business is really a necessity to be successful. Likewise, most successful business people find a large portion of their social networks through their work in one form or another. The first step in determining if you want to sell your business is really to consider what your life will be like after the sale. Do you have outside interests or other personal and business goals that you will be able to pursue once the business is sold? It is crucial to determine if you can ultimately find a satisfying and rewarding life absent your connection to your business life. Even netting a huge windfall from the sale may leave you feeling empty and unfulfilled without some other sense of purpose.
2. How will the sale of my business impact my family?
After personal happiness, most people are primarily concerned with the security, health and happiness of their families. It is important to consider the impact the sale may have on your family. This is especially true in the context of a family business where the next generation may already be involved in the business, or anticipating one day taking over the company. Open and frank communication with your family should be a part of your process in determining whether or not to sell.
3. Am I financially ready to sell the business?
For most business owners, their business is their financial engine. In many cases it represents the only significant asset of the owner. Although your company may currently be supporting your standard of living, it is entirely possible that the funds provided by the sale of the enterprise will not be sufficient to generate enough investment income to maintain your standard of living. It is important to have a good idea of your living expenses and the true value of your company and other assets, so that you can evaluate if you are indeed ready to sell. This analysis will also need to consider any tax or other financial implications arising from the sale.
4. Is my company ready to sell?
Most business owners do not operate their companies considering how a possible purchaser will look at things. The personal and business affairs of the owner may overlap inappropriately, the assets of the company may not be easily transferable to another owner, or too much of the value of the business may rest with the owner. Before you can consider selling a business, steps should be taken to get your house in order. Meticulously review your financials and your operations to make sure that everything functions efficiently and effectively. Also, train your staff and managers to operate the company so that you can begin to remove yourself from critical functions.
5. Is the market right for my business?
The economic environment and industry outlook fluctuates over time for almost all businesses. Understanding and staying abreast of not only the current environment but also long-term trends can help you determine if the timing is right for you to sell. If you are experiencing a temporary downturn, it may be wise to hold off until conditions improve. However, if your business is on the top of a peak, or beginning a long decent without any real possibility of reversal, it may be the time to get out.
The decision to start a business is a complicated and difficult one. Deciding if, and when, to walk away from that business and sell it is equally complicated. Thoughtfully considering the implications to your happiness, your relationships and your finances is the best way to make the right decision at the right time.
