By Dennis D. Coughlin, CFP
Planning to sell your family-owned business is no walk in the park.
You’ve put years, even decades, into building this business, or maybe you inherited it from your parents or grandparents. Your business may not be your life, but it sure is personal and just the thought of selling might be tough to imagine.
But with retirement on the horizon, you need to become strategic about the sale so you can preserve the integrity of your business and set yourself up for a well-funded retirement.
It’s tough to separate yourself when thinking about selling. But if you want to have a successful and smooth sale of your business, it’s important to think like a buyer.
Why You Need to Think Like a Buyer When Selling the Family Business
You may be familiar with the advice to “think like a buyer” when it comes to the sale of a home.
Thinking like a buyer means staging your home so your future buyers can picture their own family living in it. This might include replacing the gallery wall holding your family and wedding photos with a neutral piece of art. Or it could mean painting your 8-year-old’s vibrant purple bedroom a calming shade of white.
Your house, or your family-owned business, is very personal to you, and that likely comes across in how it looks and functions. That’s perfectly fine while you live in that house or own that business, but it’s not necessarily going to help you when you sell.
While it’s tough to do, looking at your business from an outsider's perspective is one of the best ways to get your business ready to sell.
4 Ways to Think Like a Buyer When Selling the Family Business
Thinking like a buyer is all about putting yourself in their shoes, and it starts with understanding how your business looks from the outside.
1. Consider how a buyer will see your business
Is it organized? Are the employees happy? Is it in good financial shape? Do all of the processes — subcontracting, communication, project management — run smoothly?
Even if you have a good understanding of how your business operates, that doesn’t mean it appears organized to an outsider.
Take the time to get organized and make any necessary changes. You might want to spend some time and money increasing your business’ enterprise value before you start looking for a buyer.
2. Understand the different types of buyers
There are internal and external buyers. Internal buyers already have a stake in the business, such as an employee. External buyers have no part in the business.
There are also strategic and financial buyers, and they differ in what motivates them to buy.
A strategic buyer is usually involved with and knowledgeable about the industry. They may be an owner of a similar business or in an adjacent market that wants to expand its products or services. In many cases, a strategic buyer might be someone in your network or community.
On the other hand, a financial buyer may know less about the industry but is more focused on the profitability of the business. Because of this, they may be looking for a business that’s already operating very well (so they don’t have to make major changes). However, some financial buyers may specialize in “flipping” a business for a profit.
Understanding these types of buyers can help you can present your business, make any necessary changes, and market the sale in the best way. Knowing the different types of buyers can also help you decide who you want to sell to.
3. Use an Outside Perspective
Remember the analogy of selling your family home? Even though the family photos on your walls increase your enjoyment of your house, that doesn’t mean they’re going to do the same for your buyer. And maybe your kids love the play structure in the back, but older buyers without kids may think it’s an eyesore.
Emotionally distancing yourself from your business allows you to see things like your buyer would. It’s so critical to do this because it allows you to find, and fix, the weaknesses in your business.
Consider consulting with a third-party valuation expert. This can help you get an accurate valuation of your business before you put it on the market. Plus, you’ll have to provide a lot of information and context for your business, all of which is helpful to understand and be able to communicate to potential buyers.
4. Help prospective buyers see potential in your business
No matter what kind of buyer you’re selling to, they’ll be interested in the potential of your business. It’s important to have a grasp on your numbers, profits, expenses, past and projected growth, and clear documentation of these numbers so buyers can understand the financial picture, too.
If you think you’ll be working with a financial buyer, it’s important to demonstrate the growth potential or scalability of your business. Think about what would happen if your business were to double in size. Do you have the technology and systems to grow with it? If not, what would you need?
If, when you take a long, hard look at the numbers, you see the potential for increasing the profitability or value of your business in the short term, you may want to take steps to do so.
Actions like investing in new technology, implementing new software to increase efficiency, or training your employees in a new skill may all increase the value and profitability of your business, making it more attractive to potential buyers.
It’s never too early to start thinking about how a potential buyer would view your business when they’re looking to make a purchase. Putting these four steps into practice today will make for a smoother transition in the future.
Show potential buyers what’s been working well in your business. Let them get to know you and your customers. Take some time to step outside your business in order to see it with fresh eyes.
With retirement approaching, you want to spend less time worrying about the fate of your business and more time enjoying the last few years of your career.
About the author: Dennis D. Coughlin, CFP®, AIF®
Dennis Coughlin is a co-founder of CG CapitalTM, a boutique wealth management firm based in New Hartford, N.Y. He is a CERTIFIED FINANCIAL PLANNERTM and Accredited Investment Fiduciary®(AIF®). Dennis also has earned a Certificate of Retirement Planning from the Wharton School of Finance at the University of Pennsylvania.
CG Capital is located at 139 Genesee Street New Hartford, NY 13413 and can be reached at 315-765-6032
Securities and advisory services offered through Commonwealth Financial Network®, member FINRA/SIPC, a Registered Investment Adviser. Fixed insurance products and services offered through CES Insurance Agency.
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.