Benchmark Business Group

Exit On Your Own Terms

October 21, 2019

Retirement is the biggest reason business owners are selling; followed by burnout. Baby Boomers are looking to life without their business, but too few are preparing to exit on their own terms.

The International Business Brokers Association (IBBA), Q2 2019 Market Pulse Report, showed that Main Street business owners are not proactively planning to exit their business.

These results are a reflection of what we see in our work with small to mid-sized businesses. Too many business owners are waiting far too late to influence the terms of their sale. Most have never received an opinion of value for their business and are making faulty assumptions about the market value. Most business owners only experience the sale of a business once, and have never had to understand the intricacies of buyer financing and negotiating sale terms.

We recommend sellers arrive early to the planning table for selling their business. Starting three to five years ahead of the date you want to exit your business can put you in the driver’s seat through the sale process. Every sale is a negotiation, and negotiation necessitates a give-and-take conversation. As a seller, you’ll be negotiating terms for:

  • The sale price of your business. Obviously buyers want to pay as little as possible, and sellers want to get as much as possible. By designing your business for maximum value, you can demand a higher sale price.
     
  • The timing of your exit. In most cases the seller will remain available to the buyer for a period of time after the sale, to provide insights and experience around business operations.
     
  • Financing the deal. Very few deals are full cash at closing. Usually financing is a mix of cash at closing and alternate forms of payment. As a seller you may need to negotiate terms for a loan to the buyer. You might carry-back a percentage of the sale, agreeing to payments over time. Or, seller financing can be in the form of an earn-out; a series of conditional payments made over time and based on agreed upon performance targets.
     
  • Additional deal terms. Other deal terms you’ll be negotiating could include protections for your employees, confidentiality, non-compete agreements and valuation of hard assets, which can influence the taxes paid by sellers and buyers.

Those business owners with the most attractive businesses can sell on terms that are favorable to them and fair to the buyer. To get maximum value for your business, put on the Buyers Glasses to see what is important to them. By understanding what buyers are willing to pay more for, and being proactive, you can design your business to be extremely attractive to buyers.

You might know when you want to sell your business, but you never know when you might need to sell it. It’s best to be prepared, and best to be able to exit on your own terms when it’s time.

Take action today to begin preparing your business for life without you!

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