5 Steps to Prepare for the Sale of a Business

By Brian Baum, CEPA®, CFP®

Although selling a business is something most business owners want to do in the long term, many aren’t preparing for it. In fact, according to an independent survey of business owners, 56% of business owners want to sell or transfer ownership of their business within the next 10 years, but 79% of owners don’t have a written plan to accomplish this. (1) An exit strategy is essential for getting a deal that is on your terms and ensures you can leave your legacy on the business you have worked so hard to build.

Step 1: Clarify Your Goals

You built your business on a dream, but it took a spark to get you to act on it and turn your vision into reality. So, begin with pinpointing the spark. What would it take for you to hand over the reins of your business? Most business owners surveyed wanted to find a buyer or successor meeting their requirements. The second highest number of owners wanted to be financially secure enough for retirement. Other business owners wanted to continue working on their business until a certain age or for as long as their health allows, or wait until their business reached a benchmark value.  

Next, picture life after selling your business. Does the thought of leaving work behind send you into a slight panic? Some owners want to stay involved in their business without the stress and responsibility of ownership, and may enjoy stepping into a part-time or consultancy role. Others prefer to make a clean break after selling their business to enjoy retirement or seek out a new challenge. What will your third act be that’ll keep you excited for the future without running your business day to day?  

Step 2: Determine Your Needs

With your end goal in sight, the next step is to determine what you need to do to reach it. For many business owners, their business and personal lives are intertwined and the business makes up a significant component of their net worth. Balancing your personal needs with the needs of your business is a top priority. As a result, you can’t underestimate the importance of long-term planning to evaluate your retirement needs and the corresponding portfolio necessary to meet them. Do you know how much you need in your portfolio to retire comfortably? 

Step 3: Fill the Gap

Next, compare your financial needs to the value of your business. Business owners typically have a sense of what their business is worth, but the best course of action at this point is to consult a qualified value advisor. A business appraisal will provide you with an objective opinion of fair market value along with analyses and evidence to support the conclusion. They will be able to run a gap analysis on the value of your company today versus what you will need after taxes to cash flow your life. They will also be able to take you through a process that will focus on maximizing business value today. If you have a successor or strategic purchaser in line, you may also want an estimate of investment value, or liquidation value if you plan to sell off assets.

A key obstacle for many business owners is knowing how to maximize their business’s value in the eyes of a potential buyer. In fact, 33% of business owners perceive the need to improve their business as an obstacle preventing them from leaving. (2) A business appraisal provides a secondary benefit of objective insight into a business’s value drivers and competitive advantages and disadvantages. Applying that information toward improving your day-to-day operations will help increase profits and chances for a favorable outcome when you’re ready to sell. 

Step 4: Look to the Future

Is your business set up to run smoothly without you? Potential buyers are interested in businesses positioned for continued success under new management. Implementing standard procedures and maintaining clear financial records can go a long way in showing buyers that your business is sustainable. Additionally, begin delegating your responsibilities to other key employees, and take steps to cultivate the next generation of management, including a compensation structure that provides them the incentive to see the business through a successful transition. 

Step 5: Take Action

When you’re ready to formalize your business exit strategy, engage a team of professionals you trust to guide you through the exit planning process. Assembling a transition team and appointing a leader keeps the process moving even when you’re busy with day-to-day operations, and ensures your timeline is still hit and you’re not delaying progress.

At Interchange Capital Partners, we use a stage-by-stage process for business exit planning. The goal is to understand your needs and objectives, the value of the business and its future growth potential, and to develop an exit strategy for the most favorable outcome. To set up an introductory meeting, email us at team@interchangecp.com or call our office at 412-307-4230.

About Brian

Brian Baum is managing director of Interchange Capital Partners, an independent registered investment advisory firm providing family office and transition planning services to family businesses. With almost 10 years of experience, Brian spends his days working with his clients to determine ideal strategies to simplify and optimize their processes and the future of their business. He is known for his attention to detail and going the extra mile to become familiar with the dynamics surrounding each situation so he can offer customized and creative guidance. 

Brian has a bachelor’s degree in psychology with a minor in business from Penn State and is a  Certified Exit Planning Advisor (CEPA) and CERTIFIED FINANCIAL PLANNER™ professional. Brian is also the president of the Pittsburgh Exit Planning Chapter, which he helped found in 2019. The chapter’s mission is to give business owners a forum to become educated on how to build a valuable and transferable business through a proven process. Outside of work, Brian enjoys spending time with his wife, Natalie, and their daughter, Quinn. He is also an avid golfer and likes the occasional scotch and cigar. To learn more about Brian, connect with him on LinkedIn.

Interchange Capital Partners, LLC, (“INTERCHANGE CAPITAL PARTNERS”) a registered investment adviser with the Securities and Exchange Commission providing investment advisory and financial planning services. Any reference to the terms “registered investment adviser” or “registered” does not imply that INTERCHANGE CAPITAL PARTNERS or any person associated with INTERCHANGE CAPITAL PARTNERS has achieved a certain level of skill or training. A copy of INTERCHANGE CAPITAL PARTNERS’s current written disclosure (ADV 2A Firm Brochure) discussing our advisory services and fees is available for your review upon request. INTERCHANGE CAPITAL PARTNERS, in addition to providing investment advisory and financial planning services, provides business consulting services. In connection with its business consulting services, INTERCHANGE CAPITAL PARTNERS does not provide tax or legal advice.

This material is proprietary and may not be reproduced, transferred, modified or distributed in any form without prior written permission from INTERCHANGE CAPITAL PARTNERS. INTERCHANGE CAPITAL PARTNERS reserves the right, at any time and without notice, to amend, or cease publication of the information contained herein. Certain of the information contained herein has been obtained from third-party sources and has not been independently verified. It is made available on an “as is” basis without warranty. Any recommendations, projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.

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(1) https://www.aiccbox.org/resource/resmgr/docs/learn/2019_business_owner_survey.pdf

(2) https://www.aiccbox.org/resource/resmgr/docs/learn/2019_business_owner_survey.pdf