Monument Resource Center
Our clients hire us because they recognize the value of our Team’s unique, straight-forward, unfiltered opinion and our tailored advice designed to answer their questions, not everyone else’s. Below, you’ll find some of the most important questions we have been asked over the years to help you better understand the role we play and the advice we give.
Step Zero: Preparation
Planning a successful business exit doesn’t begin on the day an owner decides to sell. Rather, owners should consider their life and business goals years before their planned departure to shape their business and exit strategy.
Knowing your personal goals ahead of time will drive the entire exit strategy when you do decide to make the leap. Do you want to retire and stop working completely? Do you want to stay and work in a different capacity, with less equity risk on the table?
Consider what you personally want from the exit before starting the discussion with an investment banker. Providing this context will help to find potential buyers or investors that align with your goals and negotiate a deal that fits the life you want after the exit.
On a more general note, the years leading up to that point are an excellent time to educate yourself on the exit process overall. Planning a successful business exit is not the sort of task you want to take on alone and building your deal team is a crucial part of reaching your goals. Understanding the process can help you achieve the results you’re hoping for.
Step One: Getting Started
At some point, you have to make the actual decision to sell your business.
But before you jump into action, take a critical look at your reasoning. Was this a spontaneous emotional decision resulting from a challenging year, or was this on your mind for the last five or so years? Answering these questions could mark the dividing line between failure and success.
Conduct a thorough business assessment, including its financial performance, market position, and growth potential. This will help identify areas that need strengthening before the business sale. You may have to restructure your business or make adjustments based on the goals set.
After gathering the data, pinpoint potential gaps and pitfalls, then address those issues upfront. Take steps to improve the business’s financial performance and make it more attractive to potential buyers. This can include reducing debt, increasing revenue, and improving operational efficiency.
Build Your Deal Team
Selling a business can be incredibly complex; it goes beyond simply settling on a purchase price. It involves an elaborate framework of legal agreements, extensive due diligence, and tax planning.
Once you’ve decided to sell, it’s time to build a robust deal team to help you negotiate a good deal and account for all legal and tax implications.
You’ll still need to be involved at every stage, but having experts to lean on will give you the expertise and support you need to be well-informed about your decisions.
Your team should comprise of:
1. Company Leadership Team: While you build a team of transaction advisors, don’t forget about the team you already have. This is a group of three to five executives who run the business on a day-to-day basis and are excited to see this deal through. They can provide valuable insight into company operations and help take part in the conversations.
2. Investment Banker: A good investment banker is essentially the quarterback of a business exit strategy. They’ll be your go-to partner during every step of the deal, from helping craft a brand story that will attract buyers to negotiating the best terms for the deal. They can also partner with other members of your deal team to ensure you’re getting the best solution.
3. Legal Counsel: Legal documentation will be a major part of the transaction; thus, legal counsel is mandatory. A good lawyer will help minimize the risks associated with the value or proceeds you receive. Although the true value of a legal counsel will emerge at the end of the process, it is good to engage one along every step. When thinking of legal counsel, think of documentation such as employment agreements, disclosure schedules, non-compete agreements, and indemnity insurance.
4. Accounting Experts: Accounting professionals are there to ensure your tax structures and balance sheet are in check. They can confirm that the information conveyed outside the purchase price reflects your true intentions and goals.
5. Wealth Management Advisors: Your business is a form of investment, and selling it is a major financial decision. Having wealth management, family planning, or estate planning professionals on hand is crucial for making that transition and reinvesting your wealth elsewhere. Especially if you’re considering retirement, you want to make the most of the money you’ve worked for.
Craft Your Story
At the onset, most business owners are in the habit of focusing on day-to-day operations.
A successful exit strategy requires shifting your mindset to value – namely, the shareholder’s vantage point. In other words, think like a shareholder or a would-be buyer rather than the customer audience you’re used to working with.
Remember, an investor would consider a buy based on the business’s future value and potential. Owners must tell a different story and view their business in the future rather than merely a product or solution.
Once you start the process, the front-end preparation involves having the right messaging, story, and strategic positioning to resonate with the broader set of buyers. The investment banker you partner with can help you pin down and polish that story angle.
It’s not uncommon for entrepreneurs to hide cobwebs and hope the sale will go through before anyone can notice.
We emphasize honesty, openness, and transparency from the very start. Inform your advisors of any issues in advance so they fully grasp the situation and know how to address it strategically.
Discussing these matters with your hired experts lets you strategize how to overcome impediments.
Being surprised, either positively or negatively, typically impacts the success or the expected probability of closing a transaction.
Step 2: Finding a Buyer
Once your business is in order, your investment banker can start the search for buyers and investors who might be interested. The investment banker will provide them with the information you’ve prepared about the business, then get the potential purchasers to say what they think the business is worth. This stage generally takes 2-3 months.
Even though your investment banker will be the one searching for and vetting buyers, this is an emotional time for the business owner. It can be nerve-wracking – a bit like waiting to see if anyone will ask you to the 8th-grade dance. What if no one shows up? What if no one’s interested?
Once your investment banker pinpoints the select group of serious buyers, be willing to step back and see whether these parties make sense for you. Are these groups offering transaction structures, valuations and the cultural fit that hit your priorities and objectives?
It’s also wise to engage your wealth advisor at this stage to understand what financial outcome you need to hit to accomplish your post-exit financial and life goals, and run different scenarios based on the valuations.
Step 3: Establishing the Selling Framework
After you find a preferred buyer, the final stage of the process generally lasts another 2-3 months. This part involves due diligence, negotiating legal agreements, and organizing the closing of the transaction.
Working out a deal to sell your business is more involved than settling on a purchase price. It’s not uncommon to feel overwhelmed since selling a business involves so many complex steps you’ve never thought of before.
There are a lot of mechanics involved in this step, so your team will come together to work out the complex framework of details. Accounting and legal will get involved to sort out tax implications, disclosure schedules, and various other documents and negotiations.
Throughout it all, your investment banker will be by your side to guide all of the parties working through the transaction.
There are numerous ways to structure the transaction, which will be part of the negotiation process.
For most sellers, all-cash on the purchase is the ideal situation.
Some buyers prefer earnouts to minimize their risk after a purchase, but these can also be a material risk for sellers. When you sell the business and give up control, it often impacts your ability to drive success post-transaction.
There are also deals where the seller agrees to retain a portion of ownership after the sale. This is referred to as rollover equity. The seller still gets a meaningful amount of cash at closing, but retains an agreed-upon percentage of the company so they can directly be involved in its future growth and success.
When planning a business exit strategy, every deal tends to be unique. It’s best to think of it as a journey. There will be ups and downs, but with the right preparation, deal team, and mindset, it can be a meaningful journey that will help you untap your potential for wealth and success.
Are You Ready to Exit Your Business?
To truly understand if you’re ready for an exit, you need clarity. And there is simply no substitute for sitting down with people who know how to listen and help co-create a plan that is unique to you.
At Monument Wealth Management, we specialize in helping business professionals and high-new-worth investors pave the road for their financial future. Many of our clients are current or former business owners, so we know what you’re going through, how to help you have a smooth transition, and how to set you up for financial freedom.
We start by creating a Private Wealth Design that considers your future goals and what your finances need to be to achieve that. We even work with your trusted business exit team (likely a Mergers & Acquisitions Advisor, Investment Banker, Trust and Estate Attorney, Deal Attorney, and CPA) to guide you through the process.
Instead of guessing what business exit plan is right for you, let us help provide you the clarity to make the best decision for your future.
It’s time to find clarity around your upcoming business sale and remove the anxiety of the unknown.
Read our case study, “The Confidence to Sell a Business,” to learn how we helped a business owner like you prepare for their sale.
Are you ready to engage a wealth advisor to help with a successful business exit?
*Investment Banking products and services are offered through KippsDeSanto & Co., a non-bank subsidiary of Capital One, N.A., a wholly-owned subsidiary of Capital One Financial Corporation, and a member of FINRA and SIPC. Products and services are Not FDIC insured, Not Bank Guaranteed, May Lose Value, Not a Deposit, and Not Insured by Any Federal Government Agency.
IMPORTANT DISCLOSURE INFORMATION
Please remember that past performance is no guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Monument Capital Management, LLC [“Monument”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Monument. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. No amount of prior experience or success should be construed that a certain level of results or satisfaction will be achieved if Monument is engaged, or continues to be engaged, to provide investment advisory services. Monument is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice.
A copy of the Monument’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.monumentwealthmanagement.com/disclosures. Please Note: Monument does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Monument’s website or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.
Historical performance results for investment indices, benchmarks, and/or categories have been provided for general informational/comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results. It should not be assumed that your Monument account holdings correspond directly to any comparative indices or categories. Please Also Note: (1) performance results do not reflect the impact of taxes; (2) comparative benchmarks/indices may be more or less volatile than your Monument accounts; and, (3) a description of each comparative benchmark/index is available upon request.
Please Remember: If you are a Monument client, please contact Monument, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.