The process of selling a business involves fine-tuning every piece of its financials before marketing it and seeking a buyer. But even if everything seems in order, it may not be the right time to sell. Perhaps something — or rather, someone — isn’t ready
An important question to ask before you sell your business: Can you actually afford to do it? With a multimillion-dollar payday in the offing, the answer seems simple. But in all of the fine-tuning of the business, could you have neglected your personal finances to the point that a sale won’t offer enough financial freedom?
Too frequently business owners sacrifice their own financial health or unknowingly tie it too close to their company, only realizing the situation upon the sale, creating anxiety as the regular income and safety of the business disappears. This begs two questions: Why can’t some owners afford the sale of their business, and what are their options?
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Question No. 1: Why can’t some folks afford to sell?
Let’s say a 55-year-old owner is ready to sell their business for $5 million cash with additional rolled equity. They don’t have an extravagant lifestyle, spending $200,000 per year. The $5 million sales price seems like a reasonable amount to continue living their lifestyle, right?
But what if they’re neglecting the fact that their car is owned by the business; their travel is taken care of by a company card; their health and life insurance were covered by the business; and countless other expenses are about to be the responsibility of their personal checking account, not their soon-to-be former business? Suddenly, that sale price might not be enough to live comfortably on for the next couple of decades.
Sellers must understand their true spending before thinking about any potential sale. The adjusted figure will drive all related decisions. In addition, having a handle on personal liquidity and spending assists with estate planning decisions prior to the transaction.
Question No. 2: What are my options?
It looks like $5 million just isn’t going to work to meet the lifestyle our example owner requires. There are plenty of options to get back on track, including:
- Make a push to ramp up the business’s value. This can be easier said than done, but it’s time to get aggressive, grind it out and find creative solutions. Perhaps new partners with differing skillsets can inject some life into the venture and increase the value of the company.
- Evaluate your capital structure. Some people make the error of leaving liquidity in the business for their own vanity, rather than any true opportunity. Ask yourself if you can start taking money out of your business earlier so you can stay on target for your growth objectives while building personal liquidity. Can your business support debt and servicing the debt? Debt brings its own inherent challenges and risks. Additionally, it may be time to bring in a minority partner that can infuse some capital and allow you to relinquish some of your financial stake in the business.
- Reassess the original deal. Is it possible to get more cash upfront and decrease the rolled equity amount or overall value of the business? There are risks to shrinking any offered rolled equity or declining it altogether (not the least of which, insulting the buyer), but it can buff the seller’s personal finances to get more cash up front.
The best option, of course, is avoiding this situation entirely. No matter where they are in their business’s lifecycle, owners must understand the true value of their personal spending and overall financial health. This process needs to start early, or else by the long-awaited time they’re ready to sell, they might not be.
-
Amazon Ends Free Shipping Benefit Sharing with Non-Household MembersStarting October 1, Prime members will no longer be able to share shipping perks with those outside their household.
-
Big Tech Names Rise Above Broad Weakness: Stock Market TodaySome familiar names enjoyed solid rallies on the resolution of outstanding questions, but macro uncertainty hangs over the broader market.
-
More Than Money: The Hidden Toll of Financial Abuse of Older AdultsFinancial abuse from schemes involving tech support, government impostors, false sweepstakes, grandchild hoaxes and online shopping issues can cause thousands of dollars in losses.
-
I'm a Financial Planner: Here Are Three High-Impact Ways to Make a Difference With Your DollarsThe world often feels out of control, but here are three ways to use your money — through investments, charitable giving and political donations — to help create a more just and sustainable future.
-
The Unsung Hero of Aisle 5: A Tale of Forgotten Change and Compassion at the SupermarketThis supermarket manager went above and beyond to help when a child forgot her change at the checkout counter. You might be surprised at some of the complications that supermarkets face when it comes to customers' forgotten change.
-
Train, Integrate, Retain: A Strategic Playbook for Adviser OnboardingsBuild a thriving practice by training new advisers with clear goals, structured processes and consistent mentorship for strong team growth.
-
I'm a Financial Professional: Here Are Four Ways You Can Use Debt to Build WealthUsing debt strategically, such as for homeownership, education and more, can lead to greater financial stability and growth.
-
Five Key Wake-Up Calls for Ambitious Business Owners, From a Biz SpecialistYour personal financial plan needs to include a formal exit strategy for your business, or you could be in trouble.
-
I'm a Retirement Psychologist: Here's Why Doing What You 'Ought' in Retirement Beats Doing Whatever You WantTrue retirement freedom isn't about simply doing whatever you want, but about finding purpose and direction through commitments that align with your deepest values and allow you to contribute meaningfully.
-
Tactical Roth Conversions: Why 2025-2028 Is a Critical Window for RetireesThe One Big Beautiful Bill (OBBB) extended today's low tax brackets, but they may not last. Here's how smart planning now can prevent costly tax surprises later.
