Part One: Are You “Personally Ready” to Sell?
The personal decision to sell your business is usually based upon some combination of the following:
Ø A desire to “take the chips off the table.” Your tolerance for risk just isn’t what it used to be.
Ø The joy of going to work each day is fading. Not only has the fire in your belly gone out, but it’s been replaced by the desire to do “something else,” known or unknown.
Ø Your chosen “Successor” doesn’t work out. Neither child nor employee is able and/or willing to fill your shoes.
Ø You realize that now is the time to sell because you can attain financial security.
Ø There are a lot of activities other than running a company that you still want to experience.
Let’s look at the first two personal motives that can influence your timeline of cashing out of your business today and moving on to the next stage of your life.
Taking Chips Off the Table
As we age, our tolerance for risk diminishes and our desire for safety and security increases. Owning and operating a business places the majority of your assets at risk. These risks normally include:
Ø Competitive Risks—from competitors with more money than you;
Ø Financial Risks—the need to continuously invest money in the business to sustain growth;
Ø Personal Health Risks—owners are not immune from health issues that can (and do) pop up without warning;
Ø Liability Risks—there are hundreds of thousands of practicing lawyers in this country looking for someone to sue;
Ø Business Conditions—key employees may leave or your industry may ultimately become irrelevant; and
Ø The Economy—when it cycles down will it take your business with it?
For most owners, there is a point at which these risks become overly burdensome—especially when the business itself has become valuable. You no longer want to expose your most valuable asset to constant risk. When all of your eggs are in one basket and the basket is now worth a lot of money, it makes sense to lower the risk of losing that basket.
The only way to eliminate the risks inherent in owning a private business interest is to sell it—for cash, if at all possible. Doing so not only takes chips off the table by converting an “illiquid” asset to cash, but it also allows you to eliminate personal guarantees, reduce liability exposure and remove personal collateral (used for business purposes) that was at risk.
No Fire in the Belly
Few owners reading this article are as energetic and enthusiastic about their businesses as they were when they started. Owners tend to continue in business beyond an “optimum departure date” because they don’t know what else to do with their time. They continue on and spend months or years in their businesses long after the passion has died.
First, once lost, owners typically don’t regain their enthusiasm for and excitement about their businesses. The reason is pretty straightforward—entrepreneurs like to create. Once a business has a life of its own, it is left to wreak havoc or to succeed. Making money and all of the other byproducts of a successful business are nice, but it is the act of creating, of successfully meeting the challenges, that brings satisfaction to the entrepreneur.
The “fire in the belly” is the passion that gives birth to and nurtures your business. Once the business no longer needs you, it is time to move on to the next challenge, the next call for your passion and creativity. It is at this point that many owners begin searching for the exit door in order to find the next passion.
Second, one of the few solutions to the loss of fire is to sell the business and get out. Your business will move to the next level under new ownership for whom moving to the next level provides ample stimulation and challenge.
If one, or both, of these personal motives resonate with you, then the time may be NOW to discuss with your advisors the path that needs to be taken to prepare your business for your exit. Your advisors should have experience guiding business owners like yourself through the process of reviewing the factors associated with exiting a business and creating a comprehensive exit plan that addresses both personal and business objectives.
Article presented by Robert Norris, founder and managing partner of Wishart Norris law firm, a member of Business Enterprise Institute’s International Network of Exit Planning Professionals. © 2013 Business Enterprise Institute, Inc. Reprinted with permission. Wishart Norris law firm partners with owners of closely-held businesses to provide comprehensive legal services in all areas of business, tax, estate planning, exit planning, succession planning, purchases and sales of businesses, real estate, family law, and litigation. For more information, contact Robert Norris at 704-364-0010 or Robert.Norris@wnhplaw.com.