small business

Help! I Can’t Afford to Sell My Business

Even if the deal sounds good on the surface, the effect on your personal finances may shock you. If so, you have options.

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?

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.

About the Author

Matthew Helfrich, CFP

Partner and President, Waldron Private Wealth

Matt Helfrich is President of Waldron Private Wealth, a boutique wealth management firm located just outside Pittsburgh, Pa. He leads Waldron's strategic vision, brand and value proposition and overall culture of the firm. Since 2002, Helfrich has served in a number of roles including: Chief Investment Strategist and Chief Investment Officer, where he was instrumental in creating and refining Waldron's investment discipline.

Most Popular

Where's My Stimulus Check? Use the IRS's "Get My Payment" Portal to Get an Answer
Coronavirus and Your Money

Where's My Stimulus Check? Use the IRS's "Get My Payment" Portal to Get an Answer

The IRS has an online tool that lets you track the status of your stimulus checks.
February 19, 2021
Want More Tax-Free Retirement Income? One Man’s Whole Life Decision
life insurance

Want More Tax-Free Retirement Income? One Man’s Whole Life Decision

Whole life insurance might not be something that’s on your retirement planning radar, but for this client, here’s how it served his need to control ta…
February 23, 2021
The Current Plan for $1,400 Checks
Coronavirus and Your Money

The Current Plan for $1,400 Checks

Here's what you need to know about the stimulus check plan currently being considered in Congress for President Biden's COVID-relief package.
February 18, 2021

Recommended

What to Know Before Exercising Your Pre-IPO Stock Options
IPOs

What to Know Before Exercising Your Pre-IPO Stock Options

For those with stock options as part of their employee compensation package, here are some stock option basics and tax implications to keep in mind as…
February 26, 2021
Why I’m No Fan of Trading Apps That Treat Investing Like a Game
investing

Why I’m No Fan of Trading Apps That Treat Investing Like a Game

In the wake of the GameStop saga, an investment professional shares his take on the rush of people buying into “hot stocks” only to get into hot water…
February 24, 2021
How Savers Can Earn More on Their Money, and Do It Safely
annuities

How Savers Can Earn More on Their Money, and Do It Safely

With interest rates perpetually doing the limbo (how low can they go?), here are three different types of fixed annuities that can be good alternative…
February 24, 2021
Want More Tax-Free Retirement Income? One Man’s Whole Life Decision
life insurance

Want More Tax-Free Retirement Income? One Man’s Whole Life Decision

Whole life insurance might not be something that’s on your retirement planning radar, but for this client, here’s how it served his need to control ta…
February 23, 2021