“My father, ‘Paul,’ is in a real panic over the sale of the carpet and home furnishing stores in the Pacific Northwest our family has operated for many years. He is 82, in good health physically, but fears the economy is about to turn sour and wants out of the business,” the email from “Dora” began.
“We have noticed a decline in his emotional ‘reserve’ when small problems arise in the business. He avoids dealing with them and caves in, for example, if a customer refuses to pay the balance of their bill. Inventing some artificial excuse, Dad just writes the balance off.
“Now he is negotiating the sale of the business with a potential buyer, and we are afraid of his feeling forced to take far less than what is fair. What do you recommend?”
Sign up for Kiplinger’s Free E-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.
Do not give in to the fire sale mentality
I ran my reader’s question by a pair of Southern Florida-based wealth advisers, Christopher and Michelle Mackin, a brother-sister team specializing in exit planning.
“This is a common problem we are seeing more often with our country’s aging population,” said Michelle Mackin. “A seller’s fire sale mentality is something that family members need to be aware of.”
I asked them to list what business owners often do wrong when it is time to sell.
Christopher: Fail to properly prepare for the sale
When you don’t prepare, it is likely you will not obtain as much money from the sale as what was anticipated. In part what leads to this is by failing to meet your “earn-out goals” if staff does not continue to perform as before.
Earn-out-goals are what the business must reach during a specified period of time and are different from the sale price.
Even with a firm price in hand, full payment is often subject to the enterprise having met certain financial targets. If these targets are reached, then the final payment is made.
We must not forget that proper preparation requires organizing your books and records, keeping taxes current, having addressed any pending litigation, and, importantly, being sure your staff will remain and want to see continued success.
Michelle: Go about selling your business alone without assistance
Without sell-side advisory support, you will likely not be able to maximize the dollar value of the sale. You could be conned out of your business!
Going it alone subjects sellers to unknown risks. A sell-side adviser digs into issues that can impact market value, as well as potential traps — litigation, things the seller might not even think of discussing with a buyer.
Sell-side advisory support includes:
- An attorney who is experienced with mergers and acquisitions;
- A business valuator;
- An exit strategy adviser who oversees sales team members;
- Possibly an investment banker, or business broker.
Christopher: Fail to know the number that you need from the sale
Lacking sufficient capital from the sale, you may not be able to sustain your lifestyle, have the retirement you had envisioned nor the funds to pursue a new chapter in your life.
Closely related to not having a concrete amount in mind is selling in a panic due to sudden health issues or death. This situation is a welcome mat to being conned.
Whenever possible, time to consider various options is your best friend.
Michelle: Advertise the sale of your business
If your customers see that your business is up for sale, will they continue doing business with you, likely afraid you are leaving?
Instead, work with a business broker who keeps things confidential and not broadcasting the planned sale to employees. Bluntly stated, you need to keep your mouth shut!
Business brokers have a network of buyers who they will reach out to and use non-disclosure agreements. This way, the world will not know you are selling — rather, only those entities that might have an interest in buying your business will be contacted.
Christopher: Assume that all buyers are qualified
Without doing your due diligence, the sale could fall through! You would be back at square one. Buyers must be pre-qualified for financing and have access to the funds they need for the purchase.
There are red flags that you must not ignore. For example, if the sale is contingent on other things happening, or the acquiring company says they can get financing as long as they meet a certain target. Hearing, “We’ve got it covered no problem,” but you have not been provided documentary proof.
This is why you need sell-side advisory support, where, for example, their attorneys will work with your lawyers and provide documentation proving they are ready to close the deal.
Michelle and Christopher: Failing to understand that seller’s remorse is common
You are selling something you have worked your entire life to create, so it’s only natural. Try to shake it off. Embrace where you are, what you have built and envision a future separate from your life’s accomplishments, which are now moving into the hands of someone who will take them to the next level.
-
How to Break Free From the 'One More Year' Trap and Actually RetireDespite having more than enough money to retire, some people simply cannot leave their jobs.
-
Stocks Swing Lower as Eli Lilly, Fortinet Spiral: Stock Market TodayThe main indexes finished well off their session highs after a disappointing batch of corporate earnings reports.
-
Five Things to Do if You're Forced Into Early Retirement (and How to Reset and Recover)Developing a solid retirement plan — before a layoff — can help you to adapt to unexpected changes in your timeline. Once the initial panic eases, you can confidently reimagine what's next.
-
Five Ways to Adapt Your Charitable Giving Strategy in a Changing World: An Expert GuideEconomic uncertainty, global events and increasing wealth are shaping the charitable landscape this year. Here are the philanthropic trends and some tips that could help affluent donors optimize their impact.
-
I'm an Estate Planning Attorney: These Are the Two Legal Documents Everyone Should HaveEvery adult should have a health care proxy and power of attorney — they save loved ones time, money and stress if a sudden illness or injury leaves you incapacitated.
-
I'm a Financial Professional: Here's My Investing Playbook for Political UncertaintyFor successful long-term investing in a politically charged environment, investors should focus on economic data, have a diversified portfolio and resist reacting to daily headlines.
-
The Truth About the Dark Side of Rooftop Solar PanelsRampant bankruptcies in the solar panel industry have left many consumers with systems that don't work and no way to get them fixed. Worse, they're being hounded to keep paying despite not receiving what they were promised. What can they do?
-
Six Big Beautiful Opportunities: Advisers' Guide to Tax and Client StrategiesHere are several ways financial professionals can help their clients maximize opportunities in the One Big Beautiful Bill Act, which extends key TCJA provisions, introduces increased deductions for people 65 and older and more.
-
Five Ways to Maintain Charitable Giving During Volatile Times: A Giver's GuideWhen the economic outlook is uncertain, charitable giving is even more important — and impactful. You can be strategic by using donor-advised funds, diversifying assets and prioritizing unrestricted gifts.
-
Avoid Medicare's 'Shadow Tax' With This Financial Expert's IRMAA-Busting TipsYou're cruising along in retirement, and then bam: Your Medicare premiums soar because your income crossed the limit. Take a breath. There could be a solution.
