5 Things to Consider if You Plan to Retire From and Sell Your Business in 5 Years

By; Michael B. Schwerdtfeger

You’ve successfully started and grown your business, but now you can start to imagine the day that you might want to spend more time on the golf course, with grand kids, or just hanging around the house driving your spouse crazy. It isn’t quite time to retire yet, but for the first time (or maybe more), you can envision selling your business.

NOW is the time to plan ahead and take some steps to increase the value of what is most likely the largest asset you own. There are a handful of things that you can do today that will put more dollars in your pocket when you sell in five years that you won’t be able to do if you wait until you get closer.

1. Institutionalize the Management Team: Unless you would like to continue on with the business for a long period of time after a sale, put a management team in place that can take over the day to day responsibility for the business. If you are still running the day to day operations when you are ready to retire, to get any value for your business, you are going to need to stay for two or more years post-sale to transition the business to the new owner.

2. Upgrade Your Financials: Make sure your company’s financials are professionally done and in good shape. In order for a sale to occur, you’ll need to be able to provide detailed financials that can tell the right story to the buyer. While internal financials may be ok to run your business, a buyer will want to see significant involvement by an outside accountant. Along these lines, think about getting your financials audited (or at least reviewed) the final year or two you intend to own your company.

3. Talk to an Estate Planner: Make an appointment with an estate planning professional and explain your interest in exiting your business over time. There are a variety of tools you can put in place well before you sell that may allow for a lot of tax mitigation. These tools are harder to use as you get closer to a transaction.

4. Remove Risk: While it may be difficult, try to remove as much risk as you can from the business as you get closer to the time you are looking to sell. Make sure important contracts, leases, and other important relationships get renewed for so that they extend for as long a time as possible downstream of a sale. Buyers hate risk – help them by removing it.

5. Talk to an M&A Adviser: Talk to a competent M&A advisor TODAY. Many advisors are more than willing to create long term relationships with a potential client. Given their experience, a good advisor can potentially add a lot of value for you by helping analyze how to make your company more valuable at the time you want to sell. Often, these sorts of adjustments take time, and are much harder to make as the time of an actual sale gets closer.

Most of these items are things you can do relatively easily over five years, but are virtually impossible to do when a sale is imminent. But, many business owners miss out on a significant portion of value because they don’t take the time to plan when they can.

(Michael Schwerdtfeger is a Managing Director at Chapman Associates. Michael and his team are focused on providing exceptional results through sell-side mergers and acquisitions advisement to entrepreneurs and business owners exclusively. Michael leverages his 20-years of diverse experience handling complex business transactions to help guide his middle market clients to the best possible deal outcomes.)

Category: Blog