Being prepared to sell your business from a practical perspective is one thing, but are you ready to face the next most important aspect of your business sale? I’m talking of course about the often overlooked personal and emotional side of business transitions.
You are connected to your business in many ways. Whether the business was passed down to you by the family or you built it on your own, you are connected to it emotionally for its sentimental value. And with cash flows, logistically as well. So how will you be able to put yourself in the right emotional and personal position before a potential buyer comes by with a great offer?
After working with many business owners in the Denver area who want to sell their company, we have seen it done a number of different ways. Most often, though, the response to an offer is a reactive one where the business owner thinks the offer they were made was too good to pass up and forces him or her to negotiate from a place of weakness by catching them off guard. When this process begins, most business owners are poorly prepared or not prepared at all and are limited in their ability to comprehend what the deal will mean for them financially and from a tax standpoint, let alone how it will make them feel emotionally.
On the other hand, well-prepared business owners have taken the time to create thoughtful financial plans that anticipates their own personal goals, what the goals will cost, and how they can strategize to reduce the future’s income tax and estate before considering a potential sale. When you know how much of the proceeds you need from a sale and how much of the proceeds you will receive after taxes, there are plenty of effective methods available for transferring your wealth before the sale to limit your estate tax burden.
The earlier you employ strategies before selling, the less risky they are. Having a professional transition planner take the time to help you plan will improve your chance at being ready for what your lives may look like after selling your business. You CAN mentally prepare yourself for selling a business you have nurtured yourself, thanks to the help of a licensed business transition professional.
However, you should still be asking yourself questions.
What will it feel like to hand over control?
What will you and your spouse do with all the new free time?
How will you begin to prepare for the next chapter of your life?
Talk these questions through with your spouse and family members as you see fit. Jot your answers down and look deeply at the pros and cons of each option. Be sure to have this information with when visiting your professional business transition specialist.
Additional Expenses
Thoughtful planning will also help you to anticipate pop-up expenses you might have not considered. The kind of expenses that ultimately will fall on you that only a licensed, qualified appraiser could anticipate. If you’re in the real estate business for example, odds are you rely on your CFO you oversee your holdings, handle your books, and even act as a personal financial advisor. When you sell your company, you will often lose this resource but still need it. Planning ways to handle your personal service needs is one of the most important things you can do in the emotional and financial transition of selling your business.
The best plans can anticipate potential sources of cash flow such as
Installment sale payments
Income from rental properties
Investment return, and
Social security income
The plan should also include detailed expenses in the form of goals including, but not limited to
The cost of living
Replacement vehicles
The cost of travel
Gifting plans and
Large one-time purchases
Building in expenses you know will come your way such as caring for an elderly parent or your son's or daughter’s wedding is also smart.
You should also build in the factors of inflation and conservative investment returns. These will offer you comfort that your plan is still realistic. Contact a licensed business transition specialist if you have any questions regarding inflation or conservative returns. Business owners often find themselves more caught up in the heat of the moment when presented with an offer that they often make no plans for what they’ll do with the proceeds before they accept the offer and sell. Without a well thought-out plan, they listen to proposals and pitches that often don’t even fit with their personal needs or goals. Personal financial plans put in place by your transition mentor that clearly identify the appropriate level of risk and considers the investment strategy that will help them meet their personal needs is an important tool for avoiding rash decisions that could have lasting effects on their long term financial health.
Emotional Readiness
Being emotionally ready is another important and often overlooked element that requires you to fully contemplate your business transition decision.
What will your role be after selling the business?
Will you still be satisfied with your life?
What will your purpose be?
Many people overestimate how long they will take an interest in a hobby or sport. Keep that in mind.
Ask yourself what you want to do
Will you travel?
Will you be a full time grandparent?
Will you volunteer at your favorite social club?
Will you be a consultant in your industry?
There are hundreds upon hundreds of options. By preparing with your business transition mentor now, talking the options through with him or her, and beginning the transition of your time you will find yourself more comfortable when your business goes through the impending change.
It doesn’t matter what role you choose after selling your business. Whether you’re still involved as an executive or as part of an earn-out, the emotional challenge of your new life can be just as tough on you as the business challenges of getting to that point.
At the end of the day, the best thing you can do is be prepared.
Stay Tuned!
Next month we will look at the final Stages in the Transition RoadMap®.
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ETS Compass is my personal newsletter that provides thought-provoking topics and helpful guidance to business owners looking to navigate change in their businesses. Whether it is value enhancement or transition planning, it is my goal to educate you.
My goal is to provide useful and purposeful information to you that may help you transition from your business.
Author: Sheryl Brake
Sheryl is the CEO and Founder of Encompass Transition Solutions, LLC and former partner of a top 25 national accounting firm. She has been working with business owners in a wide variety of capacities for more than 30 years. Sheryl lives in her home state of Colorado with her husband, Michael.