business succession planning

Business Succession PlanNING may help you preserve the value of your legacy

It’s anticipated that during the next two decades, retiring business owners will sell over twelve million businesses.  So, if you are over the age of forty-five and your business represents one of the key assets of your legacy, you need to take steps now to preserve its value for the time you will sell it or pass onto your children.  It might be your only source of income – your only real asset intended to provide you and your family a source of income during your retirement age. So, you need to take steps now to preserve your business and maximize its value – well in advance of the contemplated sale.

Business succession planning is an often overlooked, yet critical factor in preserving your legacy.

How to Maximize the Value of Your Business 

Wise business owners who prepare their businesses for sale can expect a comfortable retirement.  With a few simple steps, a business owner can substantially increase the value of his or her businesses upon sale. A seller shall learn to view his or her business through the eyes of a potential buyer to ensure success during business succession planning.

1. start with the numbers

The first step in business succession planning is to try to quantify your past business results by compiling revenues, costs, and profits for the last few years of operations.  Be sure to follow proper accounting practices, including recording cash receipts, so your financial statements accurately show your business’s performance. Doing business in cash is often preferred by small business owners, but such practices will undermine the value of your business and expose to significant risks in the future.   

Using the verified accounting number, make reasonable assumptions for the near future to create a reasonable performance forecast.  Your financial information may also help you to find financing opportunities for the deal if the buyer needs a third party to finance the acquisition of your business. Any sophisticated third-party lender will require solid accounting and financing records before financing the acquisition of your business. 

2. Tell your Story

Integrate your financial results into your marketing materials.  Your current financial statements and performance forecast should showcase your business’s unique position and growth opportunities.  Potential buyers are interested the most in the opportunities for higher sales and greater profitability. You may want to create a “teaser” one-page marking prospectus to hook a buyer’s attention before you share any financial information.

An interested buyer will be as excited to hear about your business as you are to tell about it. So, tell your potential buyer a clear and simple story in your marketing presentation. Your story, however, has to be credible and based on the actual performance and trends in the industry. (A few potential buyers will be excited to hear about the opportunities of doubling your business if your business’s actual performance shows meager growth or decline in business.) 

Once you identify a potential buyer, make sure that you sign a non-disclosure agreement.  Most buyers are well-familiar with such agreements and typically expect to be asked to sign them. 

3. Find the Right Buyer

You want to find a buyer who is in a position to buy and understand both your business and the market.  But, most importantly, your buyer should see a prospect in your business.  A person who doesn’t see growth or potential for success with the purchase of your business will not pay the best price.  You want your business’ buyer to succeed after the acquisition. 

4. Make the Deal

A sophisticated buyer will want a large earn-out – a portion of the purchase price that occurs after the sale, determined based on the agreed-upon milestones (such as sales or profit margins).  Such a buyer will want to pay as little as possible at the closing. You, however, want a large portion of the purchase price to be paid at closing, with as little in earn-out as possible. So, engaging an outside professional broker or an experienced M&A attorney may help you to bridge the gap.  In fact, you should never be afraid of asking for help from professionals at any point along the way. Lexern Law Group is happy to assist in business succession planning.

Preserve Your Legacy Today

Selling your business is a time of change in your life. The complexity of the details behind the process illustrates the value of working with experienced professionals, such as brokers, CPAs, and business succession lawyers like us.  So, whether you have a business-succession plan already or not, meeting with Lexern Law Group to learn about planning strategies can help preserve your legacy for generations to come.

Disclaimer: This article is intended to serve as a general summary of the issues outlined therein.  While this article may include general guidance, it is not intended as, nor is it a substitute for, a qualified legal advice.  Your review or receipt of this article from Lexern Law Group, Ltd. (the “LLG”) or any of its attorneys does not create an attorney-client relationship between you and the LLG.  The opinions expressed in this article are those of the authors of the article and does not reflect the opinion of the LLG.

This article is a service of Lexern Law Group, Ltd.  We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Family Wealth Planning Session, ™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. 

You can begin by calling our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.