Dec. 3, 2024

This paid piece is sponsored by Eide Bailly LLP.

By Erica Bjerrum, partner

A version of this article first appeared on EideBailly.com.

Selling a business is a pivotal moment in any owner’s career — often a once-in-a-lifetime event. Yet many business owners find themselves unprepared when an opportunity to sell arises. Early exit planning is the key.

For businesses rooted in the Sioux Falls community, the impact of a successful sale extends beyond the balance sheet. It touches employees, vendors, customers, charitable organizations and the broader community.

As a business owner, taking steps now to prepare for this transition ensures your legacy continues to thrive when the time comes. Here are the three most important lessons learned in sell-side readiness.

Lesson 1: Now is the time to prepare for exit

There is often a disconnect between understanding the importance of transition planning and taking action to prepare for exit. Your exit plan should be part of your overall business strategy. It should be a living, breathing component that impacts the way you run even the day-to-day operations of your business. Keeping your exit plan at the forefront allows you to strategically and thoughtfully increase the value of your business and make it appealing for future owners.

Another aspect of early exit planning is gifting considerations. For those transferring the business to family members, starting early is essential. Gifting portions of the company can have significant tax implications. Proactive planning allows for tax-efficient strategies and provides beneficiaries with a clear understanding of their future roles within the business.

Moreover, planning now provides the luxury of making strategic decisions that align with long-term objectives. Approximately 50 percent of business owners are forced into involuntary exits. Having time on your side allows for careful consideration and the implementation of a strategy that best fits the desired outcome.

Finally, early planning allows for greater flexibility in choosing optimal market conditions for the exit. Business owners can take advantage of favorable economic circumstances and capitalize on opportunities that align with their exit strategy.

Lesson 2: A quality of earnings report can be extremely valuable

Quality of earnings is a fundamental component of sell-side readiness because of its ability to enhance transparency and mitigate risk. An upfront QofE analysis provides accurate and transparent financial statements, fostering trust with potential buyers and demonstrating the seller’s commitment to transparency. By proactively addressing financial discrepancies and irregularities, it reduces the risk of last-minute surprises that could disrupt the sale process.

A clean QofE report also can lead to a higher business valuation because buyers often pay a premium for businesses with well-documented financials. It attracts serious and qualified buyers, streamlines due diligence and minimizes the risk of deal breakdowns during negotiations. In essence, QofE ensures a smoother and more successful transition when it comes time to exit. 

Lesson 3: Remember to consider your life after the sale

Thinking about life after the sale extends far beyond the financial aspects of the business transition. It encompasses planning for your personal and professional future once you’ve parted ways with your business. First and foremost, this involves setting clear personal goals and defining your new role, whether it’s retirement, pursuing new ventures or embarking on a different career path.

Beyond that, it entails taking a close look at your financial well-being and making sure you have a solid plan in place to sustain your lifestyle post-sale. It’s essential to consider how the sale proceeds will be managed, whether they’ll be invested, diversified or used for other ventures. Equally important is safeguarding your legacy, which may include philanthropic activities or passing on wealth to the next generation, and ensuring these aspects are well structured.

Prepare for the what’s next 

Selling your business is a journey, not a destination. Whether you’re working to increase value, considering potential buyers or thinking beyond the sale to life’s next chapter, the path to sell-side readiness is multifaceted.

For Sioux Falls business owners, this journey is about more than financial gain — it’s about preserving your legacy, supporting your community and ensuring a smooth transition for all who rely on your business. No matter where you are in the process, the next step is clear: Start now.