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The biggest mistakes owners make when selling their business

by Ozva Admin
The biggest mistakes owners make when selling their business

Robert Daly | fake images

For many entrepreneurs, selling or transferring a business is like giving up a baby they have raised since infancy.

The stakes are certainly high financially, with 80-90% of business owners keeping their financial wealth locked up in their businesses, according to estimates by the Exit Planning Institute, an education, training and accreditation organization. . Many owners also underestimate the many emotional aspects that go hand in hand with exiting a business.

Here are five mistakes homeowners should avoid when selling a business.

lack of planning

Not involving professionals early

Some owners, who might be used to a do-it-yourself approach, may try to do the same when it comes to a sale or transfer of their business.

But taking this step, without consulting outside advisers such as M&A specialists, valuation experts, CPAs and lawyers, is ill-advised, according to exit planning professionals.

Justin Goodbread, a certified financial planner and president of wealth management firm WealthSource, offers the example of a six-figure mistake he, a seasoned exit planning professional, almost made in a recent deal. Had it not been for his outside advisers, he would have signed an official letter of intent that would have limited his tax planning abilities.

“As a Certified Exit Planning Consultant, I know all the steps involved in making a business sale. However, my eagerness to close the deal made me miss a step,” he said in emailed comments. “Because my attorney and CPA were involved, they were able to tell me to slow down and we were able to transact in a more tax-sensitive manner,” he said.

Insisting that children are the next rightful owners or not considering children as successors

Many business owners plan to pass their business on to the family: 44% according to a UBS report from October. But, as the report illustrates, they aren’t always sure how to divide the assets or whether the heirs want the business.

Sixty-seven percent of surveyed owners believed their heirs wanted the business, and 33% thought their heirs would be more interested in the assets from the sale. However, among heirs, 52% say they want the actual business, compared to 48% who say they prefer the assets from the sale.

To help flesh out what’s important to both parties and ensure assumptions don’t get in the way of sound business decisions, Julia Carlson, founder and CEO of Financial Freedom Wealth Management Group in Newport, Ore., initially conducts two meetings, one for owners and the other for their children. “Because different things will be said if we all get together first,” she said.

With the founders, discuss their wishes for the future of the business and other financial considerations. Consultations with children include their ability and willingness to buy the parent’s stock and run the business. If sibling joint ownership is an option, she assesses your ability and willingness to work together. Armed with this information, she brings both parties together so they can start taking the next steps.

Not planning after sales

Planning for a business sale or transfer should also include understanding what’s next, whether it’s volunteering, traveling, starting a new business or something else, said Scott Snider, president of the Exit Planning Institute. Whether outgoing founders are 40 or 65, it’s critical that they determine their vision for the next stage, he said.

For many founders, the business has been the most important part of their life for 20 or 30 years, and the void can cause great emotional turmoil, including higher instances of divorce and general dissatisfaction with life. “They often feel like they’ve lost their identity,” Snider said.

Owning a helicopter business

Because their lives are so intertwined with the business, owners sometimes stay involved for too long, impeding the successor owner’s ability to prosper. This can often be true of family businesses. Carlson offers the real-life example of a patriarch who decided a few years ago to transition the family business to his capable and willing adult children. Instead of following through on this commitment, however, he continues to come into the office every day and micromanage the sons’ business dealings, leading them to consider leaving to start their own business.

“The father is so used to running the business for 40 years that he feels it will collapse without him.” However, if things stay as they are, the business could collapse due to his inability to let go, Carlson said. “It’s like the business is another child and you can’t give enough space to see the success of the other side.”

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