Last week the company Snapchat, and its founders, made headline news when they rejected a $3 billion deal from Facebook. Why did they reject the offer? It has been reported it was because they felt there was more to earn down the road. Did they pass up a deal of a lifetime? Or will they be correct and find that they will either earn more or be offered more down the road? Of course, only time will tell but it does raise the question – when is the right time to get out of your business?
It is important for business owners to ask that question periodically throughout their career to determine what they want to do with their business, what they want for their business and when would be the best time to take action. Some businesses may just end when the owner(s) stop working or pass away. However, for owners that want to sell their business, or have their business be carried on, they need a strategy for either avenue.
Jack Roberts wrote about business succession planning a few years ago and outlined general questions to consider when starting the process. Similar to how important it is for individuals to draft an estate plan, it is equally important for a business owner to have a plan in place regardless of whether the owner passes away unexpectedly or not.
The article 5 Steps to Create a Viable Succession Plan for Your Family Business, by Michael Evans, has a useful checklist to help start the planning process. Of course, the success of the transition will only work if the owner has determined what is best for the company ahead of time. For example, while an owner may wish to leave the company to his or her heirs, he or she may find that the children do not wish to carry it on. Instead, the business owner may want to allow current employees to take over the business and buy-out the children.
If a business owner wants to sell their business during their lifetime, it is even more important to keep a pulse on the status of the business, its value and the interest of the market. Selling your business can be emotional. This is your blood, sweat and tears…not to mention your livelihood. But you need to be realistic about its worth. Is your business primarily successful because you are the one at the helm? Will it still thrive with someone else in place? Is your business still growing or has it become dated? These are questions that should be asked and answered at different points throughout the business’ lifetime.
It is advisable to have a business valuation performed on a regular basis to always have an idea of where the company stands. It also helps you understand when might be the right time to cash out. Forbes has an article about the 6 Factors to Consider in Selling Your Business, in which it notes that as the baby boomers age and continue to retire, “…there may be fewer qualified buyers in the marketplace in the coming years…”1 When you have the data from a business valuation it is easier to assess whether there are potential buyers in the marketplace interested in your business. Ultimately the decision to sell is the owner’s but they should continue to ask the questions to know whether selling is even a possibility.
Regardless of what the right course of action is for your business – just don’t forget about it in the estate planning process. And just as you and your business have evolved overtime, so too can your plan for it.
16 Factors to Consider in Selling Your Business, Forbes, January 15, 2013.