Experience is often the best teacher. Based on our many years of experience working with business owners, we understand the ramifications involved when they don't proactively plan the sale of their business. We also see how emotions and attitudes can often stand in the way of taking that important step.

One of the most common regrets we hear from business owners is that they waited too long before planning their exit. Having a well-designed plan helps ensure that an exit is not made on other people’s terms — such as selling to the first suitor who comes in the door. Some business owners rush into a sale because of a change to the competitive market landscape or a change to the industry and its technologies. On a personal level, even a divorce or illness can trigger a sale. In addition to preventing an owner from realizing the full value of their company, a harried sale scenario also affects others. Without a timetable and specific strategies, a domino effect could occur within the organization as uncertainty leads to anxiety among valued executives and employees, and in turn, key departures from the business.

However, despite the established benefits of early planning, many business owners don’t do it. U.S. Trust’s 2016 Insights on Wealth and Worth® survey found that more than half of business owners are planning at least one transformational change for their business in the next three years and yet sixty-three percent are without an exit strategy. Most surprising is that the older generations are the least prepared: seven in ten business owners who are “Baby Boomers" or older do not have an exit plan.

So then, what inhibits normally highly driven, visionary business owners from planning?

DON’T UNDERESTIMATE THE POWER OF EMOTIONS

Generally, resistance to proactive planning stems from three basic attitudes and emotions:

OVERCONFIDENCE
Business owners who have built a successful company often feel confident about handling a sale when the time comes. But a sale is not a one-time sprint. It is a marathon requiring preparation, ongoing adjustment, and a post-exit strategy. It is also a path best not taken alone. The impact and complexity of a sale, and all the unique steps that go into it, should not be underestimated. Therefore, in addition to planning early, it’s important for an owner to approach a sale with an awareness of the experience they bring to the exit plan and areas where wealth planners and transition specialists can complement that experience.

PERFECTIONISM
Attention to detail is often a point of pride for business owners. That often carries over to planning the sale of a business. However, that desire for perfection leads many business owners to wait too long for the right moment Lessons Learned Before, During and After the Sale of a Business 2 to start planning, or insist on having the perfect plan before taking any action. In reality, early action based on a rough plan is frequently better than waiting for the perfect plan. It is also important to recognize that a plan will not be “perfect" for long. Perfectionism can often lead to rigidity, and rigid sellers can get broken in the process. An effective plan should be flexible and adaptable. Business owners should mentally prepare for frequent revisits and adjustments as circumstances change.

FEAR AND ANXIETY
Companies are grown with purpose and passion, and that can develop a powerful sense of identity. But what will happen to employees, products and services, and the owner’s reputation after the sale? Fear and anxiety about the answers can lead to a reluctance to tackle these questions about a sale. Many choose to ignore planning because it forces them to confront potentially difficult questions about their future and legacy.
It is important to understand the emotions others have experienced in order to better recognize and compensate for them and set up for success before, during and after a sale.

TYPICAL MINDSET OF A BUSINESS OWNER APPROACHING A SALE:

“I’m starting to think about selling my business, but I’m not sure what to expect. It’s already starting to make me feel anxious. I just want to make sure I’m doing what’s right for me, my family and my company, but the process is so complex, I worry about making the wrong decision."

BEFORE A SALE

PLAN EARLY, PLAN OFTEN
The foundation of any sell strategy is simple: plan early and plan often. Developing an overarching exit strategy can go a long way toward mitigating fears and getting a handle on important looming questions. This plan should highlight macro considerations like:
• By what date do you want the process to be complete?
• What would you like to do after the business sells?
• Who among your family members and employees need special consideration and what will that entail?
It’s important to note that actions in one area often impact another, so the plan should simultaneously consider personal wealth goals along with the business exit plan. A wealth advisor can help leverage the right wealth transfer strategy based on those needs — whether it’s a direct gift, a sale to an intentionally defective grantor trust, a grantor retained annuity trust, a philanthropic vehicle, or some other technique. Working with advisors who can help navigate that process could help reduce the impact of income taxes on sales proceeds and transfer taxes on business values.

COMMUNICATE THE PLAN
Worrying about the impact of a sale on family members, key management, and employees can create anxiety as well. To alleviate that, the business owner should be thoughtful about communicating the exit plan to others. Designating an objective, experienced, independent third party that can manage and help communicate the plan may ease family tensions. This is especially pertinent if family members work at the business and rely on it for income.
With a firm strategy in place, owners can then start to make decisions for life after the exit.

A SPECIAL CONSIDERATION: SELLING A FAMILY BUSINESS

This can be complicated because the emotions related to the sale are even more pronounced. A multitude of other questions will arise: What will become of the family name and legacy? How will family members be affected? What about those who work at the business compared to those who receive income without working? What if the sale is to another family member; how will that affect operations? To avoid friction, the combination of sale, succession, and estate planning should be handled openly, responsibly and fairly among family members.

DURING A SALE

FINDING THE RIGHT NUMBER
The emotional impact of a sale is most heightened when it comes time to attach a numeric value to the business. This can be extremely hard for business owners, many of whom have such a deep personal connection with their business that they refer to it as “their child." As a result, it can be a shock to meet with potential buyers who look at the company differently than the owner, and may have a lower value in mind. Having a team of advisors in your corner who understand your business and industry and can objectively assess the value of your business can help give you confidence in your approach and decisions.

LEANING ON THE PROFESSIONALS
Don’t underestimate the toll of running the business while also focusing full-time on supporting the sale. The selling process has numerous micro-steps and procedures, and for an owner accustomed to being in control, this transactional complexity can be overwhelming. It takes skill and experience to fully understand the difference between financial and strategic buyers, to seek buyers while avoiding competitive disclosure, and to manage the due diligence and bidding processes. Make sure to lean on your team of experts and specialists, like your investment banker, to help navigate those steps.

A DYNAMIC, NOT STATIC PLAN
Sale plans are flexible frameworks that will have trigger events and definable milestones. The plan will be important to interacting with and adapting to different sale scenarios without compromising core leadership and management logic.

AFTER A SALE

Business owners pour themselves into their business. As a result, business ownership can become a significant part of one’s identity, and after the business sells, there can be a deep sense of loss. Sometimes, there is a contractual obligation to stay on after the sale to aid in the transition. This is typically a very hard adjustment: to go from owner to employee, particularly if your name is still on the company door. You may be privy to strategic management issues, but not in control to steer them. If this is your approach, just be sure to manage your expectations going into it.
A work identity change can also be accompanied by a change in relationships. For example, your spouse may not be accustomed to your daily presence around the house after you have spent years working long hours at the office.
To cope with the sense of loss and natural relationship changes that come post-sale, it can help to define a plan for how you want to fill time and continue to build a legacy.

PHILANTHROPY
Many business owners choose to focus on philanthropic endeavors. This can be a personally and professionally fulfilling experience, as it offers the opportunity to contribute to or build something that aligns with one’s personal values and world outlook. Philanthropy is often more than writing a check. In fact, some business owners have refined or created their own philanthropic strategies and vehicles to ensure their vision is optimally achieved. An advisor can help craft a philanthropic approach that maximizes intent and contributions.

NEW BUSINESS
The sale of a business often marks the start of a new venture. Some owners may choose to fill the professional void with a new passion project or business idea. With a focus on the new venture, it helps to have a wealth advisor and commercial banking partner to rely on to help manage liquidity services, custom credit, real estate financing, asset management, and other essential financial aspects of the business.

“Work provides us with a purpose for life, a structure for time, and a community. A successful plan should ensure these values endure for the owner, even after the sale."

– Barbara B. Roberts, Entrepreneur in Residence at The Eugene Lange Entrepreneurship Center of Columbia Business School

Knowing what emotions and psychological obstacles come into play during a sale should help you better anticipate common challenges and build a plan for a successful transition. Ultimately, it’s the comprehensiveness and flexibility of your plan that will help you achieve a smooth transition to the next endeavor that gives you the purpose, structure and community you value.

TIPS AND EXPECTATIONS FOR A SALE

In 2015, U.S. Trust published The Owner’s Journey white paper, which was prepared by the Eugene Lang Entrepreneurship Center at Columbia Business School, in collaboration with U.S. Trust and funded by a grant from Bank of America. This white paper profiled eight business owners who had sold or transferred a business, and what follows are the top tips and expectations gleaned from those interviews.

 

LEARN MORE

Knowing what emotional hurdles to expect and taking steps to properly prepare can help you feel more confident in addressing the unique challenges — before, during and after the sale of your business. For more on what to expect and how other business owners have navigated the process, read The Owner's Journey white paper, which is available at ustrust.com/business.

At U.S. Trust, we have a long and rich history of helping business owners achieve their own unique objectives. Since 1853, we've been committed to listening, building long-term relationships, and helping individuals and their families realize the opportunities they create for themselves, their children, businesses, communities and future generations. From wealth planning, to trusts and estates, to philanthropy, we can help you focus on what's most important to you personally and professionally.

To learn more about how U.S. Trust's approach to business and succession planning can help, please contact your advisor.

 


U.S. Trust operates through Bank of America, N.A., and other subsidiaries of Bank of America Corporation. Bank of America, N.A., and U.S. Trust Company of Delaware (collectively the "Bank") do not serve in a fiduciary capacity with respect to all products or services. Fiduciary standards or fiduciary duties do not apply, for example, when the Bank is offering or providing credit solutions, banking, custody or brokerage products/services or referrals to other affiliates of the Bank.

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