For a business founder, their ”investment” in the business is multi-dimensional: financial and emotional. Selling the business isn’t just an event, it’s a journey. So argues the author of this article, an author, advisor and figure in the wealth management industry.
Step three: financial preparation. “I’ll get the check and then I’ll work out what to do with it” is a common attitude from business owners. That moment when the money is in the bank is the goal many business owners seek, but it’s actually the start of the next part of your life. Just like you spent time developing your business idea before launching it, you need to spend time preparing for how your financial position will look after that liquidity event.
Going from having a significant proportion of your wealth tied up in a single operating asset to liquidity is a huge shift. Some business owners experience a shift in their appetite for risk after an asset sale. Some find investment decision-making a challenge and can be overwhelmed by the choice, like looking for breakfast cereal in a supermarket. Importantly, the returns being delivered by your operating business may have been far higher than what can be achieved passively investing the sale proceeds.
Being financially prepared means having a reasonable picture of what you intend to do with the sale proceeds. I recommend that people consider their long-term goals (mine is 40 years) and prepare a matching financial plan, so that they can be satisfied that the business sale will allow them to achieve their goals. Having such a plan in place before you even start the sale process is important because it can help drive decisions relating to the business sale terms, such as earn-outs or a partial/staged divestment.
For one of my businesses, the journey of preparation started with a health challenge and a reassessment of my life goals. From there, the three stages of emotional, structural and financial preparation ran in parallel for several years. Having the business in that sale-ready state has given me the emotional space and freedom to pursue new goals and transform my life.
For a business founder, their ”investment” in the business is multi-dimensional: financial and emotional. Selling the business isn’t just an event, it’s a journey. To navigate that journey so that it leads to more than just cash in the bank, ensure that you consider all three steps toward true sale-readiness.
About the author
David Werdiger is #1 best-selling author of Transition; How to Prepare Your Family and Business for the Greatest Wealth Transfer in History and Founder of the Nathanson Pearson Family Office in Melbourne Victoria Australia.