Help Business Owners Sell: 5 Tips
An estimated 3 million business owners are expected to sell their companies in the next five years, according to the Exit Planning Institute, which certifies financial advisors to become exit planners. And those entrepreneurs are going to need plenty of help — before, during and after the sale.
We asked experts for some tips for advisors whose clients are getting ready to sell a business. Read the full story on exit planning opportunities here, or click through to see five things advisors must know about helping entrepreneur clients. -- Charles Paikert
View these five tips in a single page version here.
Address fundamentals first, the Exit Planning Institute recommends. Ask the business owner what the business is worth today and how it compares to its competitors. "It's also critical to know: Is the business building value or simply sustaining a lifestyle?" says Christopher Snider, chief executive of the institute.
Advisors should identify the owner's exit objectives and prepare a financial and retirement needs analysis, says John Brown, CEO of the Business Enterprise Institute.
Consider issues such as health and long-term care coverage and construct a financial plan.
Help clients envision what their life will be like after the sale, and what their corresponding financial needs will be. "When the company goes away, life is very different," says Michael Montgomery, managing director at CTC Consulting/Harris myCFO. "Many expenses that the company paid become expenses the client must pay."
Include financial profiles for before and after the sale. For example, a wealthy business owner may have a personal residence, concentrated equity ownership in the company, real estate leased to the company and cash flow derived from wages, company distributions and distribution of rents received from real estate. But after a sale, the former owner may purchase an additional residence or vacation home, have a liquid portfolio and real estate that is retained and leased to the acquirer of the business
The question for the client is: Will they have enough to meet their lifestyle maintenance goals?" Montgomery says. "If no, what do they have to do?"
"Owners selling their business need to understand the importance of having credible leadership in place during the transition and after they're gone," says John Lame, chairman of Lenox Wealth Management. "They need to be involved with making sure the new leader not only is a good manager but shares the same values as the founders and cares about the company's clients and customers."
Founding owners often neglect governance and a board of directors, Lame says. "Many founders never had a legitimate board and don't realize that having one is important to a buyer," he says. "They need someone to come in and tell them what good governance looks like."
As business owners prepare to sell, advisors have new opportunities for growth. Here's what you need to know.