Baby boomers, born between 1946 and 1964, represent approximately 21% of the U.S. population, according to Census.gov. Now between the ages of 61 to 79, many boomers who have spent their adult life building a family business are nearing retirement and seeking a life less centered on work. While many family business owners look to their children as successors, that is not always an option — some children may lack interest, while others may not have the necessary skills or experience to run a company. In these situations, selling their company is often a key step in securing a solid financial future for retiring baby boomer business owners.
Thoughtful planning and strategic execution are critical for a successful sale. Below are some key considerations to keep in mind when preparing to sell your business.
1 | Timing is Important
Don’t wait until you are forced to sell due to declining health, because the timing might not be right to sell. It is best to sell during a period of revenue growth or stable profitability. And if you don’t have the option of passing on the deal and continuing to operate the company, your leverage at the bargaining table is much less. Finally, private equity buyers often require the current management to continue operating the business for some period under an employment or consulting agreement. Therefore, it’s best not to wait until you must sell because you can’t work any longer.
2 | Organize Records
Make sure your records are up-to-date, accurate and easy to understand. These include:
- Financial statements (balance sheets, profit and loss statements and cash flow statements). Having audited financial statements is a big plus.
- Tax returns (typically for the last three to five years)
- Customer and supplier agreements
- Leases and other material contracts
- Organizational documents
3 | Consider Getting a Business Valuation
It’s essential to have realistic expectations about what your business is worth. A professional business valuation provides an objective estimate of your company’s value based on comparable company sales and other factors. If you are using an investment banker or business broker to sell your company, they will perform a valuation as part of their professional services. Having a valuation also helps you negotiate better. The valuation does not need to be shared with the prospective buyers.
4 | Identify Potential Buyers
There are different types of buyers, each with unique goals and expectations:
- Strategic buyers (e.g., competitors or companies in your industry)
- Financial buyers (e.g., private equity firms, individual investors)
- Internal buyers (e.g., employees or partners)
- Family members
Many business owners overlook financial buyers; however, private equity firms make up a huge segment of buyers and often pay the highest price.
5 | Plan for Taxes and Legal Implications
The structure of the sale, whether it’s an asset sale or sale of corporate stock, can have major tax consequences. Work with an experienced tax advisor early in the process to understand how the sale will impact your personal and corporate taxes. In addition, use an experienced lawyer to help negotiate the transaction terms and documents. The documents will most likely contain non-compete clauses, indemnification provisions and other post-sale legal obligations that could affect your future and should be carefully considered.
Selling your business is a significant decision that requires careful planning and execution. Having an experienced mergers and acquisitions attorney is critical as you navigate this process. Whether you are years away from selling or already fielding offers, it’s never too early to engage counsel and start preparing. Your future self will thank you for your foresight.
Scott Whittaker (left) is a member of Stone Pigman who concentrates his practice on real estate development and financing, M&A, and corporate and business law. He may be reached at swhittaker@stonepigman.com.
Ed Bukaty is a member and business section head at Stone Pigman. He may be reached at ebukaty@stonepigman.com.
