Exit Planning for a Retirement Business Sale

Jul 12, 2022

Where do we go from here, now that all of the children are growin’ up?

And how do we spend our lives, if there’s no one to lend us a hand?

I don’t wanna live here no more, I don’t wanna stay

Ain’t gonna spend the rest of my life quietly fading away

These are the opening lyrics to Games People Play by The Alan Parson Project. https://www.youtube.com/watch?v=lr092oGJG7Y

As a business broker in my 29th year of representing owners of privately held companies and family businesses, I have heard similar words from entrepreneurs many times in exit planning discussions where they conveyed a lack of family members interested in taking over executive leadership of their businesses and/or expressed a readiness to end the “working” chapter of their lives in pursuit of more freedom and adventure.

Benjamin Franklin once said, “Those who fail to plan, plan to fail”.  That was true related to selling a business when the man on our $100 bill retired at the age of 42, after making enough money as a printer to allow him to pursue personal passions ranging from inventing to providing thought and governance leadership in the creation of the United State of America, and is true today, 274 years later.

Exit planning to facilitate a retirement sale is a sophisticated, nuanced process requiring knowledge, experience, skill, and a team of professional advisors.

The process starts with establishing two target dates. The first target date is the date an individual wants to stop working and officially enter retirement with no business responsibilities.  As an example, let’s pick December 31, 2023, a date approximately 18 months on the horizon.  The date appears very distant, but in terms of a successful exit from entrepreneurship it is a conservative, realistic goal.

A typical business sale facilitated by IBA takes 3 to 12 months, so using the longer horizon time frame, the 12/31/23 deadline is now operational backed up to December 31, 2022.   Add in an 1 to 6 month transition training/consulting period by retiring ownership with their successor and if the longer period is selected, a date already passed is achieved.  The best-case scenario would have a sale completed with transition with the process starting September 1, 2023, so the variance between scenarios is about fifteen months.  However, the point “time is of the essence” has been illustrated for those who want to retire before 2024.

A target date for retirement selected, the first step in a thoughtfully executed retirement business sale process is to get the business valued.  Business valuation can be performed by a variety of parties.  It is my recommendation one opinion of value be obtained from a business broker with experience selling companies in the relevant industry and geographic area.  It is only that individual that can successfully combine accounting, finance, and investment based appraisal principals & methodologies with knowledge related to market demand and similar completed transactions.  Many business brokerage firms, including IBA in Washington & Oregon, will provide a professional opinion of the market value of a company for free as a method of providing a preview of their knowledge, experience, and customer service.

An estimated market value obtained, the next step is to consult with your CPA to calculate the net proceeds from a business sale after taxes. This figure should then be provided to your wealth advisor to incorporate the amount into retirement planning often incorporating Monte Carlo analysis of best and worst case scenarios.  https://www.investopedia.com/articles/investing/112514/monte-carlo-simulation-basics.asp  The basic question on the table being, if my business broker achieves the business sale they predict can I let go of the cash flow provided by my business and retire.

Assuming, the projected sale price is sufficient to facilitate retirement, the next step is to engage a business broker to sell the business.  (Insider Note:  When interviewing business brokers for professional representation vet the parties on their success rate and the accuracy of their opinions of value in relationship to ultimate sale prices.   As a reference point, IBA annually sells 80 – 90% of its engagement projects with almost all of the transactions being completed within 10% of the price the business was brought to market. The last thing an entrepreneur wants is to pack their bags for retirement, wait at the station to depart, and not have a train arrive or arrive with only enough fare to allow one of two individuals in a marital community to grab a seat on the train.)

The first activity for business broker after securing a project is to market the company for sale.  This process is more sophisticated and requires higher skill than selling virtually any other product as it has conflicting objectives at its foundation. The first goal is standard for any sales process, creating buyer demand from as many qualified parties, as possible. The second goal, however is to mitigate the number of people who know a business is for sale because if word gets on the street a business is for sale it can impact customer engagement, employee retention, and vendor relationships.  It is very important both in terms of achieving the highest possible value and facilitating a smooth transition of ownership that processes be employed that create an environment of confidentiality and utilize best practices in terms of information distribution throughout the sale of a business.

The buyer located, negotiations commence. The obvious areas of negotiations are the price and financial terms of the sale, however an experienced, knowledgeable, highly skilled intermediary will also insure that issues ranging from tax allocation to the non-competition agreement and trailing liabilities to post transaction transition training are addressed in alignment with market standards and attention to detail.

The parties getting to “Yes” and exchanging the business for dollars, the final stage of a properly facilitated business is sale is commenced, the transfer of knowledge and executive responsibilities from the seller to the buyer.   Depending on the buyer and the desires of the parties, this transition can take a couple of weeks to multiple years.  I recently had dinner with a past client who worked eight years for the buyer after the sale and loved every minute of it because their position could be tailored to the activities they enjoyed.

Beloved, former Washington State Senator, Andy Hill, once said, “You have three chapters in your life, the first you learn, the second your earn, and the third you serve.”  Senator Hill was beloved because of his willingness to selflessly give of himself whether it was serving in government or coaching soccer.  Each of us deserves a final chapter of our life, where we get to do exactly what we want whether it is walking on a beach with a spouse, reading a book, volunteering, or traveling to a place you always wanted to visit.

IBA has been successfully helping entrepreneurs sell their companies and retire for forty-seven years in the Pacific Northwest. We are a low pressure, consultative sales organization that is only paid by our customers if we complete our assigned projects.  If you are thinking about selling your business in Washington, Oregon, or Alaska in 2023, 2024, or 2025 in a retirement sale, we would welcome the opportunity to provide an overview of our services.  All information shared with IBA is held in strict confidence.  Meetings can be held at your business, in our conference rooms in Bellevue, Portland, & Spokane, or at your home.

IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, and mergers & acquisitions community on subjects relevant to the purchase & sale of privately held companies and family-owned businesses.  IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.