Business succession plans are often complex but are critical for any business owner. If your succession plan hinges on the future sale of your business, here are the eight steps you should consider.
Although the landscape of American businesses may have changed a bit over the years, per Small Business Administration's Frequently Asked Questions, July 2024, small businesses remain an important part of the nation's economy. While many businesses adapted and thrived post-2020, one critical area remains overlooked: succession planning.
As mentioned in my previous blog, Succession Planning is Critical for Every Small Business Owner (2020), many business owners invest a great deal of time, energy, and money (not to mention sweat and tears) into their business — it may easily be the largest portion of their investment portfolio. However, many of them have not considered how to extract the true value of their business. So when it comes time to prepare for their own retirement, business owners should try to understand that all of their assets, including liquid assets, and the amount needed to make them whole after a sale.
The answer? Establish a succession plan that outlines a roadmap for all the necessary actions. Although such plans are often complex in their scope and detail, it's well worth the time to create one in advance and review with your accountant, lawyer, financial advisor, and key members of your leadership team. If your succession plan hinges on a full sale of your business to an outside entity, there are many factors to consider.
According to a prompt I entered into ChatGPT, the AI generated that "selling a business is a multi-step process that requires careful planning and execution. Here are some key steps to consider:
1. Prepare for the Sale
- Determine why you're selling (retirement, new opportunity, financial reasons, etc.).
- Get financial statements in order (balance sheets, profit and loss statements, tax returns).
- Conduct a business valuation to determine its worth.
- Improve business operations to increase value before listing.
2. Assemble a Team
- Consider hiring professionals like:
- Business broker (to find buyers and negotiate).
- Accountant (to ensure financial accuracy).
- Attorney (to handle legal aspects).
- Financial advisor (for tax planning and investments).
3. Determine Asking Price & Market the Business
- Set a realistic asking price based on valuation.
- Prepare a confidential information memorandum (CIM) for potential buyers.
- Market the business through brokers, online platforms, or personal networks.
4. Screen Potential Buyers
- Require confidentiality agreements before sharing sensitive business details.
- Qualify buyers based on financial capability and experience.
- Conduct initial meetings to gauge their seriousness and fit.
5. Negotiate & Accept an Offer
- Evaluate offers based on price, payment structure, and buyer qualifications.
- Negotiate terms, including:
- Down payment & financing (if seller financing is involved).
- Transition period (if you’ll stay on temporarily to assist).
- Asset vs. stock sale structure.
6. Due Diligence Process
- Allow the buyer to review financials, contracts, leases, inventory, and operations.
- Provide necessary documents while protecting confidential information.
7. Finalize the Deal
- Draft a purchase agreement with legal counsel.
- Transfer business assets, licenses, intellectual property, and customer/vendor relationships.
- Handle tax implications (capital gains tax, transfer taxes).
8. Transition & Handover
- Provide necessary training and support to ensure a smooth transition.
- Introduce the buyer to key employees, customers, and suppliers.
- Announce the sale if appropriate."
Let McKinley Carter Wealth Services be a part of your ‘Succession Team.’ We want to help you see your financial future.