Many businesses begin with a well-crafted business plan including the product/service, pricing, supply chain, customer demographics, and marketing ideas. A sound business plan may also include a defined exit strategy, including selling your business.
With good fortune and hard work, the business grows over time and the founder may feel ready to exit the business. Once a successor is identified and a suitable price is reached, the sale of the business will create a liquidity event and a major life move for the owner.
Careful planning both before and after you sell your business can make a meaningful difference in the outcomes.
What is the state of your industry now? Where is it going over the next 5-10 years? What is the realistic growth trajectory for your specific business? Is the business valuation adequate to meet your personal planning objectives?
Because you started and grew your business, your hard work and relationships created a competitive edge for the business. Could the new owners benefit from having you fill a consultant role for a period of time? Or, will it make the most sense to have a clean break after the sale closes? Will you be able to let go of what you built? Will you retain ownership of the real estate to generate residual rental income?
In theory, each year of revenue and profit growth affords higher compensation. When the business sells, your income will depend on how the payout is structured. How can this new compensation be received for the greatest tax efficiency? As a result, your personal cash flow, investments, and tax planning may have to adjust to accommodate this shift of income.
You may encounter an identity shift when selling your business and changing your title from “owner” to “former-owner.” As part of your exit strategy, identify your new purpose with family, your community, and with the legacy you want to leave.
If you’re considering selling your business, or you’re looking to start a business, beginning with the end in mind can guide the choices you will make for yourself, your family, and your other stakeholders.
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