letting go & moving on:business transitions
by paula o'hara

For most entrepreneurs, the business is not just a job; it is an ever-evolving process as well as a possession with high value. It is not a surprise that entrepreneurs have a hard time letting go. Common catalysts for “letting go and moving on” vary: time for retirement, the need for increased working capital, a changing industry, or general burn-out. In many cases, it is not until the owner identifies a new, more compelling enterprise that she prepares to exit from the original business. One of the editors of WNC Woman is a good example of this phenomenon.

Although successful business owners have strong planning skills, they do not often plan their exit from the business:

85% of business owners have no exit strategy
65% do not know what their company is worth
-Source: M&A Today

Entrepreneurs continuously improve and build their organizations but they seldom consider their future viability. In addition to a general disinclination to consider a separation, the process is hard and unfamiliar. Planning a smooth exit is a choice, but running the business forever is not.

Timing: Once a business owner has decided that it is time to move on, he or she should not delay. The process on average takes 10-12 months and one needs extraordinary perseverance to run the business well once the decision has been made. Recognizing that the process takes time is quite different from living day after day in uncertainty.

Exit Options: The initial decision to exit the business has two paths: shut it down or keep it going. If the owner decides to continue the business as an on-going entity, this opens up more options: transferring the ownership to existing employees, family ownership, or selling to a buyer from the outside.

Sell the Business: When an owner begins to consider selling the business, it is important to take time to answer a few simple questions:

Before beginning the complex process of selling your business, be sure of your decision.

Yes or NO I am sure I want to sell my business
Yes or NO I realize that I will probably be required to sign a non-compete agreement
Yes or NO I want the sales process to be kept confidential
Yes or NO I am going to close the business if I do not sell it within _____ months
Yes or NO I am comfortable with the timing of the selling process (choose one of the following options)
[ ] Up to three months
[ ] Up to one year
[ ] Over one year
After I sell the business, I am going to ______________________________________________ (fill in the blank).
Excerpted from Seller Issues: A Questionnaire

If a business owner is not able to fill in the “After I sell the business” blank with one or more reasonable alternatives, it may be too soon to consider an exit. (For a copy of the complete Seller Issues: A Questionnaire, visit www.newsouth.info.)

Personal Goals: The key to developing the right exit strategy is clearly identifying goals and objectives. How important is it to insure the viability of the company? What about timing? And training of the new owner? What debts must be paid off? What price is acceptable?

Maximizing value: Maximizing value is likely an important consideration for a seller. Fair market value, as defined by the Internal Revenue service, is
“the price at which the property would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts.” -IRS Rev.Rul. 59-60

Determining fair market value is a combination of art and science. It is an activity which combines financial calculations and analysis of the appeal of the business as well as some basic common sense.

Buyers of businesses are usually buying an income stream and generally, the greater the cash flow, the higher the price. The value can be significantly enhanced by good financial records, steady profitability and the absence of any “clouds” such as obsolete inventory, pending litigation, or problem employees.

In addition to price, terms, seller financing and other commitments, if the seller wishes to maximize the financial return, he or she must consider the complex subject of taxes. Their effect can be significant.

Afterward: My grandfather was not only the brains of his business; he was its soul. When he turned 75, he promoted himself from President to Chairman and put the business up for sale. Although acquirers made several attractive offers, no offer was acceptable to him. He died and some years later so did the business. He had been a brilliant strategist while he operated the business but he was not capable of “letting go”.

Paula O’Hara, MBA, is the owner of New South Business Ventures, Inc. She advises business owners on acquisitions, divestitures and exit strategies.

[ paula@bizsellbuy.com ]