Dec. 27, 2023

This paid piece is sponsored by Eide Bailly LLP.

By Erica Bjerrum

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. Even so, many business owners find themselves unprepared when an opportunity to sell emerges.

The ongoing success of a business has a ripple effect that extends to employees, vendors, customers, charitable organizations and the community. This means that you, as the owner, must be ready for the sale when the time comes.

Key considerations in sell-side readiness

In a broad sense, achieving an effective transition is reliant on the owner optimizing business value, preparing for life without income from the company and developing a plan for themselves after stepping away from the business.

Being sell-side ready, then, encompasses:

• Financial and psychological readiness to endure the demands of the transaction.
• Realistic expectations and a deep understanding of the transaction process.
• Having the essential foundations in place to navigate due diligence.
• Ensuring your team is ready to continue operations under new ownership.
• Making necessary adjustments to enhance the value of your business.

Why is such preparation essential to the success of the transition?

Selling your business is a significant transaction. Although you may feel ready, you truly won’t understand the physical, mental and emotional toll until you’re in the process. However, taking steps to prepare will help you navigate common pitfalls, including:

• Deal fatigue: This is both a psychological and emotional challenge that arises when sellers underestimate the effort involved in the process. Being prepared helps you avoid this pitfall, preventing the disruption of your business and unnecessary time and financial investment.
• Analysis paralysis: Sellers often get overwhelmed by ongoing due diligence and financial analysis. Sell-side readiness gives you the time to organize and prepare these documents, sparing you the stress of addressing these issues midprocess.
• Late-stage valuation adjustments: During due diligence, buyers may uncover critical details that affect their valuation. Being prepared enables you to address these issues before they derail the deal, keeping you from being stuck in a prolonged due diligence process.

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.

• 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.

• 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 future now

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. However, no matter where you are in the transition process, the next step is clear: Start now. The preparation you undertake today not only will maximize the value of your business but also ensure a smoother and more purposeful transition.