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How to Prepare for the Sale of a Business: My Personal Experience Selling

By Frank Legan & Michael DeJohn

The sale of a business can be one of the most complicated aspects of a closely held company, especially if it is a family-owned operation. You may have always dreamed of passing the business to the next generation, and now as the time approaches, maybe it doesn’t make the most sense. Opting to sell instead can bring up a lot of emotions and concerns: Who will take over? How will your former employees be treated? How will your family react?

Whichever options you are considering, succession planning is a crucial part of your business’s long-term success. According to an independent survey, 56% of business owners want to sell or transfer ownership within the next 10 years, but 79% of owners don’t have a written plan to do so. (1) Selling your business on your terms is difficult without planning your exit strategy in advance. So, what can you do right now to prepare?

Determine the Structure of the Sale

The first thing you can do to prepare is determine the ideal structure of the sale. There are several options to consider, including:

  • Strategic sale: Your business is sold to a larger competitor or industry leader. This option could impact your current employees and may lead to layoffs if the new owner decides to consolidate roles. 
  • Private equity sale: This is a sale in which the company is sold but the new owners keep your management team in place to run the business. The new owners would most likely not purchase the assets of the company (like buildings), so there would be a continued revenue stream in this type of sale.
  • Employee stock ownership plan (ESOP) sale: In this scenario, the business is sold to your existing employees through a trustee and your family remains invested for a fixed period of time. These sales can be complicated to set up as they require an ESOP retirement plan to be created first.

After choosing the type of sale you want, you should also consider the payment structure that works for your needs. For example, you could receive a lump-sum payment, installment payments, or payments based on a percentage of future profits. Each structure has different tax implications, so it’s important to thoroughly review the pros and cons of each before making a decision. 

Review or Create a Strategic Plan

The next thing you can do to prepare for a sale is review or create a strategic plan. This will help you determine the long-term direction of your business, which in turn helps to decide the type of sale that works best for your company. 

A strategic plan is different from a succession plan, but both are equally important and should be implemented prior to sale. A succession plan should include the following: 

  • Key leadership positions including who will take over and under what circumstances
  • Competency and skills required for senior management
  • How profits should be distributed and how taxes and liabilities are handled
  • Assessment of current employee bench strength
  • Career development strategies
  • Mechanism for monitoring and implementing new processes and strategies

Many buyers want to see that there are solid plans in place, especially for strategic or private equity sales. It’s important to show that your business has a strong purpose and a forward momentum that will continue even after the sale.

Obtain a Business Appraisal

Business owners typically have a sense of what their business is worth, but the best course of action is to consult a qualified business valuation expert. A business appraisal will provide you with an objective opinion of fair market value along with analyses and evidence to support the conclusion. 

If you have a successor or strategic purchaser in line, you will also want to prepare an offering memorandum to provide an in-depth look into the business, which includes the financials, marketing strategies, customer base, potential growth strategies, competitors, and challenges.

A key obstacle for many business owners is knowing how to maximize their business’s value in the eyes of a potential buyer. A professional valuation combined with an offering memorandum can greatly improve your chances for a favorable outcome when you’re ready to sell. 

Start Preparing Today

The best thing you can do to prepare for a sale is to plan ahead. We at Cedar Brook Group are focused on helping family-owned businesses navigate the sale of their companies. If you’re ready to start planning today, reach out to us by calling 440-683-9213, emailing flegan@cedarbrookfinancial.com, or click here to schedule online

About Frank

Frank Legan is Partner, Financial Advisor, and member of the Investment Committee at Cedar Brook Group, one of the largest independent wealth management firms in Northeast Ohio. Frank spends his days designing and implementing personalized financial planning strategies for corporate executives, closely held business owners, artists, families, and retirees. He specializes in lifetime income strategies, investment advice, and estate planning services. He also works with businesses to develop strategic and succession planning strategies. Frank has a Bachelor of Arts degree in Political Science from the University of Dayton, as well as a Master of Public Administration degree focused on municipal management from Cleveland State University. Prior to joining Cedar Brook Group, Frank was a financial advisor in the private client group at Merrill Lynch and with NatCity/PNC Investments. Frank is active in his community, serving on various councils, boards, and committees. When he’s not working, you can find Frank spending time with his wife, Laura, their daughter, Reese, and their beloved collie, Charlie. Frank and his family are volunteers at St. Francis of Assisi church in Gates Mills. Frank serves as Chairman of the Board of Directors for Catholic Charities Diocese of Cleveland. To learn more about Frank, connect with him on LinkedIn.

Securities offered through Cadaret, Grant & Co., Inc., an SEC Registered Investment Advisor and member FINRA/SIPC. Advisory services offered through Cadaret, Grant & Co., Inc. and Cedar Brook Group, an SEC Registered Investment Advisor. Cadaret, Grant & Co. and Cedar Brook are separate entities. Please remember that securities cannot be purchased, sold or traded via e-mail or voice message system. Please contact our office at 440.683.9252 should you need assistance in placing a trade. This email transmission and any documents, files or previous email messages attached to it may contain information that is confidential or legally privileged. If you are not the intended recipient, you are hereby notified that you must not read this transmission and that any disclosure, copying, printing, distribution, or any action or omission of this transmission is strictly prohibited. If you have received this transmission in error, please immediately notify the sender by telephone at 440.683.9252 or return and delete the original transmission and its attachments without reading or saving in any manner.

Securities offered through Cadaret, Grant & Co., Inc., an SEC Registered Investment Advisor and member FINRA/SIPC. Advisory services offered through Cadaret, Grant & Co., Inc. and Cedar Brook Group, an SEC Registered Investment Advisor. Cadaret, Grant & Co. and Cedar Brook are separate entities. Please remember that securities cannot be purchased, sold or traded via e-mail or voice message system.

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(1) https://www.aiccbox.org/resource/resmgr/docs/learn/2019_business_owner_survey.pdf

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About Frank Legan

Frank Legan is Partner, Financial Advisor, and member of the Investment Committee at Cedar Brook, one of the largest independent wealth management firms in Northeast Ohio.

Frank spends his days designing and implementing personalized financial planning strategies for corporate executives, closely held business owners, artists, families, and retirees. He specializes in lifetime income strategies, investment advice, and estate planning services. He also works with businesses to develop strategic and succession planning strategies. Frank has a Bachelor of Arts degree in political science from the University of Dayton, as well as a Master of Public Administration degree focused on municipal management from Cleveland State University.

Prior to joining Cedar Brook Financial Partners, LLC, Frank was a financial advisor in the private client group at Merrill Lynch and with NatCity/PNC Investments. Frank is active in his community, serving on various councils, boards, and committees. When he’s not working, you can find Frank spending time with his wife, Laura, their daughter, Reese, and their beloved collie, Charlie. Frank and his family are volunteers at St. Francis of Assisi church in Gates Mills.

Frank also serves as Vice Chair of the Board of Directors for Catholic Charities Diocese of Cleveland. To learn more about Frank, connect with him on LinkedIn.

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