In this Episode of the Secure Your Retirement Podcast, Radon and Murs discuss when a business owner should start planning to exit with Van, a Raleigh-based business broker who helps owners across the Carolinas and Virginia sell and transition their companies. For many owners the business is the largest piece of their retirement, and selling it well starts years before a buyer ever sees the books.

Listen in to learn about the steps that get a business ready to sell, what the process looks like once it goes to market, and how taxes and deal structure shape what an owner keeps after the sale.

In this episode, find out:

• Why Van says exit planning starts the day you buy or start your business
• The two kinds of readiness, business and owner, and why you need both for the best result
• What buyers look for, including three years of clean financials and a valuation based on comparable sales
• How a sale unfolds, from the Confidential Information Memorandum to closing, and why it takes months
• Why the sale price isn’t what you keep, and the two-to-three-year minimum runway Van recommends

Tweetable quotes:

“From the moment that you buy a business or start a business, you should prepare for the future to exit that business.” Van [last name to confirm]

“It’s taken you 10, 20, 30 years to wind up your business…it will be difficult to unwind it or transition it in 30 days.” Van [last name to confirm]

Resources:

If you are in or nearing retirement and you want to gain clarity on what questions you should be asking, learn what the biggest retirement myths are, and identify what you can do to achieve peace of mind for your retirement, get started today by requesting our complimentary phone conversation with Secure Your Retirement!

Here’s the full transcript:

Well, thank you very much, Van, for coming on and talking with us here on our podcast to secure your retirement. So, just want to first of all say thank you so much for coming on. We appreciate it. 

Thank you. It’s a pleasure to be here, and I’m excited to take part. 

Well, good. Well, you know, this topic of selling a business or getting out of a business, if you’re a business owner, that is a really, really big topic. So that’s why we kind of wanted to talk about this from the perspective of, sometimes people do things too late, and we’ll talk to them about that as well, as far as their steps they should have done ahead of time. I know you and your business help people in this area. Could you just walk us through what somebody needs to do just to get ready to sell, well before they’re actually saying, I want to sell? What are some steps they need to do just to get ready? 

Great question. It’s one that I really hope that business owners will take to heart. One of my old clichés, but I think it does hold a lot of truth to it, is that from the moment that you buy a business or start a business, you should prepare for the future to exit that business. Now, because I’m in the sales aspect of, of selling a business, uh, you know, I often address it from that angle, but, uh, it could mean simply from transitioning, uh, from one generation to the next or from one partner to the next or whatever. 

So I’ll, I’ll try to be mindful of, uh, using the term transition, uh, as often as possible, not just selling. But, uh, I think it’s very important, and, um, taking those steps, uh, such as, you know, having the right trusted advisors in your corner. And when I use that term trusted advisors, I mean, like, working with a business attorney who can give you good, sound advice around the operating agreements that you should have in place or buy-sell agreements. Having the right insurance for your business, commercial-type insurance. Having a good CPA or fractional CFO, you know, that financial piece. Having good wealth advisors to, you know, to secure the future of your business. 

Because, as you guys know, oftentimes for business owners, one of the largest assets that a business owner may have may be that business that they have to, you know, that they’ve worked on for so many years, and it becomes a large part of their wealth equation. So I think having trusted advisors in your corner is super important for the future transition of your business. 

Okay, Van. So thanks for that. So let’s just imagine I’ve got a business, and it’s profitable. It has been profitable for years now, and I’m ready to sell. And I’ve kind of thought through the transition of who’s, who’s going to potentially run it after the fact, but what does it mean to be ready to sell? What are all the things that someone needs to be looking at from an internal perspective of their business itself, like systems and processes and all of that? But also, what are, what are buyers really paying attention to when, when they’re, what are they really looking at from an external viewpoint? 

Great question. I love that because there are two major, to me, there are two major categories of when you think in terms of ready to sell. There is the business preparedness that you need to take for the business, and then there’s the owner preparedness that needs to be there. And you can have one without the other, and you won’t have the best results possible unless you have both components. 

So the way I let people know about this is, as an owner, are you mentally ready to transition away from your business? If you’ve been working at that business for 10, 20, 30-plus years, and all of a sudden you are faced with, you know, separating yourself from that business probably permanently, are you mentally ready and financially ready and all those things to do so? There are a lot of emotions oftentimes that are wrapped up for an owner in transitioning away from that business that they’ve worked so hard to create. So first of all, the sellers should be mentally ready and prepared. 

The second part, of course, is the business side and all the things that you might imagine, plus some others, but certainly having your financials easy to read, easy to interpret for a potential buyer. Three years minimum of corporate tax returns, P&Ls, and balance sheets that are easy to follow. Showing that profitability, that you haven’t treated that business as your personal piggy bank, is important. 

Getting a valuation is so important to the steps leading up to a transition or sale. For me, as an intermediary, I think what a valuation does is it level-sets expectations for the seller. They may have a number in mind that either they believe it’s worth or that they believe that they need to have in order to transition away. And to actually have empirical, real-world data showing a value range of your business that oftentimes we use comps or comparative sales of businesses just like the one that we’re marketing, you know, to run through and make those comparisons. That’s what we like to show our client and make sure that they understand that this is what the market is showing. And furthermore, will a lender lend on the business based on that value? So those are the things I think are very important. 

Yeah. Well, thank you very much for that. That’s, you know, sometimes I think people might not really understand all those different pieces that you’ve got to have in place to be able to sell a business. We’re used to selling things like a house or a car, and all those things you’re saying are everything you would have to have on a house. I’d have to have a comp plan. I’d have to make sure I know what my house is worth and show that it’s worth that. So all those things make perfect sense. 

So let’s kind of flash forward a minute, and let’s assume that I have all those things in place that you’ve mentioned. I’ve gotten a valuation on my business. I’ve got good books in place. I’ve listened to everything you said. I’ve got all the advisors in place, and everything is exact. I’ve had somebody guide me through that, and we’ve got everything ready to go to market. 

Could you kind of walk us through what a sale involves once I’m ready and you’re not having to tell me I, you know, got bad books and all that kind of stuff? I’ve done everything the way you’ve told me. So now what does it look like after I’ve done all those things? 

Sure. So I always, you know, advise clients that, first of all, I let them know, thank you for taking those steps that you guys just mentioned to prepare. And oftentimes the question is, well, how long can I expect the process to be? And as I like to say, it’s taken you 30 years, 10, 20, 30 years, to wind up your business or wind it up to the point where it is. It will be difficult to unwind it or transition it in 30 days. 

So it is a process whereby we, as intermediaries or brokers, do take those good, sound businesses who have taken those processes to heart, and we put a marketing plan together. The acronym is CIM, C-I-M, Confidential Information Memorandum, whereby we gather those financials together that we can present to a potential buyer after having signed a nondisclosure agreement. 

We start interviewing, so to speak, buyers for our clients, or vetting them, maybe is a better way, based on their financial wherewithal and their interest level and maybe their qualifications in terms of industry background and whatnot. So we have a fiduciary responsibility to our clients. So we want to make sure that we’re bringing the best candidates forward for them and that sort of thing. And so we take both parties through those processes. 

We also try to help the buyers in many cases. If we’re representing our client in that capacity, oftentimes a buyer may not have representation. So although we have a fiduciary responsibility to our client, and we would not disclose personal information that would betray their trust, we may have to sometimes help the buyer by providing resources like a lender, you know, if they need an SBA lender to buy this business. We may have that in our wheelhouse or an M&A business-type attorney. We might make recommendations there or someone to take them through the due diligence process. We may have CPA recommendations. 

So to help our party or our client, sometimes we’re helping both, but it is a multi-month process, and we’re there to guide our client throughout, regardless of what that takes, and see them all the way through the closing. 

Yeah, and it seems like there are quite a few moving parts there. So having someone that’s done this more than once in your corner, I could see being tremendously, you know, advantageous. 

So businesses today, I mean, the numbers can be all over the place. But, you know, let’s say a business is contracted to sell for a million or five million or $10 million. As the owner, as the owner, you would say, well, that’s a lot of money. But sometimes we forget to realize, well, depending on how the money comes in, in a lot of cases it’s bigger lump sums, or maybe even speak towards how you’ve seen things structured. 

But there’s taxes. I guess what I’m getting at, Van, is that there’s taxes that sometimes get ignored. And that million-dollar sale, all that million is not yours, or the 5 million or the 10 million. So how do you work alongside some of those strategic partners to make sure it’s as efficient as possible for the owner that’s selling the business to help them wrap their minds around the, yeah, there’s a big number up top, but then there’s a lot of costs that goes into it, some taxes. And what am I getting at the end of the day? And have we made sure that everyone working on my team is kind of on the same page around efficiency there? 

Sure. This is a question that I get fairly often, Murs, but there are times when I wish clients would, in fact, when they don’t ask it, I try to take them through that scenario because I don’t want any client to have a regret post-sale that, why did I do this or whatever. 

My firm and I, we try to talk people through those scenarios, but also we don’t get into it beyond our capacity. If people are willing to take a handoff, we want them speaking with groups like yours to explore the scenarios of what it may take to live if they’re selling a business and that’s their nest egg, if they’ve been treating that business as their future nest egg for retirement. 

We want them working with firms like yours or with you specifically to run modeling to see what that looks like. And you also can provide good information around tax event, the tax event itself. And are there ways to mitigate taxes, not just on top of the reinvestment of those funds? 

So that’s why we are so high on working with trusted advisors, that those are the kind of things that you guys have that deep expertise, subject matter expertise, to go into those things. We’re here to recognize it, but we don’t want to be the one-stop shop. That’s where we want experts such as yourselves to step in and work with that client to help them have the maximum outcome that they can have. 

I’m sure you walk people through this all the time, so I’m just curious, if I’m listening to this particular episode and I’m thinking, man, I kind of do want to go down this path of exploring the idea of selling my business, I’m curious, just so that maybe individuals listening can recognize to it and maybe connect, what are some of the concerns that people have when they come to you, business owners when they come to you? They’re having that conversation. Like, what’s some of their anxieties about, and what some of their concerns about? Because I think that might help the people that are listening to go, yeah, that’s exactly what I got. And then how are we going to deal with it? 

For sure. I love this. You frame that question a little differently than I hear it sometimes. So thanks for that, Ray. 

I would say, first of all, as a business owner, and this is something that’s my personal little soapbox from a broker industry perspective, that I want business owners to not be in, either intimidated or be afraid to start thinking about your exits or your transition sooner. Brokers would like a seat at that trusted advisor table a little bit sooner than we’re typically thought of. 

We’re usually thought of naturally towards the end of when they may be, as a business owner, tired, burnout, whatnot, but brokers can actually help inform the process along with your wealth team, along with your business attorney or your CPA or whatnot. We can inform things around value. We can inform things around who might the buyers be and how long the process, like you’ve already asked, might take and those kinds of things. So we want to be in the conversation sooner. And we can help dispel some of those perhaps anxieties that you might have. 

We know, and I’ve been a business owner myself, and I grew up in a family business. So there’s a psychological component of that identity and of being that business owner. So I often play, you know, psychiatrist a little bit and say, do you have a plan post-exit or post-transition? What do you plan to do once you’ve sold or moved on from the business? Do you have a new goal or new things in mind? 

And when the people say golf, fishing, whatever, I’m like, well, that’s good for the first couple of months, but you’ve been going 100 miles an hour for the last 20 or 30 years. Do you think that will really be satisfying to you? So I really want people to play out those scenarios and really know what to expect post-transition. 

So even if my firm is not the one to help them, I want them to know about things other than just a sale, whether it’s an ESOP, an employee stock option, or if it’s transitioning to a family member or transitioning to, you know, sale to an employee or other methods. I want them to know the options and feel comfortable that they’re making the right choice and that it’s the right time. 

Yeah, I think that makes a lot of sense. And speaking of right time, Van, what is, like, on average, would you say is the sweet spot of having conversations with someone like you before the sale? Is it five years? Is it seven years? Is it 10 years? What do you see on average as kind of the sweet spot? 

I would say, and guys, you know, and I have friends such as yourselves in different trusted advisor roles. And I think all, without fail, almost all of our answers is the sooner that business owners will allow us to work with them and us share our expertise in our particular fields, we can make a greater impact. 

But I would say at a minimum, if we can speak to them two to three years prior to when they have set a target date for their sale, that allows us to get those financials that we need to see to make sure that everything looks good. We can talk to them about who the buyers might be. We can talk about maybe ways to improve. 

We often introduce them to business coaches, EOS implementers, folks like that who can come in and help juice up, in a good way, or find areas that can be improved in their business to maximize that valuation and make it more sellable. So having a couple, you know, one, two, three years in advance allows us to implement those, you know, to make the findings, to implement those changes and then show the new results versus where they were. 

So that’s the optimal range, is having a couple, two or three years, you know, time. But as ultimately as, you know, as a person in my role, I will meet people where they are. So if people have to sell prior to when they had set a goal, there may be a health scare, health issue. There may be some sort of market condition or something that is leading them to have to move up that timeline. So we will meet them where they are. But ideally, as the question you were asking, we would like to see two to three years minimum. 

All right. Excellent. Van, it’s been nice just kind of helping you walk us through and kind of think through some of these things because it is a big deal. And we know from what we do in our business that the business owner, their biggest nest egg is their business because they put everything back into it. They don’t look at their sometimes 401(k)s as their best way to save. They say, no, I need to invest back in this thing that I know is going to give me a great return. So people do rely on that for their retirement years. 

So if somebody’s listening and they are thinking, I’d like to be able to have a conversation with you, maybe start this conversation, get that underway, what is the best way for somebody to connect with you, to get in touch with you? 

Sure. And hopefully we can exchange that information. But my firm is based here in Raleigh. Have business, we’ll travel. I’ve represented businesses all up and down the East Coast. I’d say the sweet spot is the Carolinas and Virginia for the majority of where our work is done. But regardless, we’re happy to meet them wherever. And whatever someone’s comfort level is, whether it’s a Zoom call, whether it’s a phone call or in person, happy to do that. 

My website is www.vdconsulting.com, phone number 919-780-9144, and then email is van@vdconsulting.com. So any one of those ways will reach me, and I love to set up a time to just talk through it. 

And I do want to stress one thing that hasn’t come out in our conversation to this point is that my firm, like many other professional brokers, want to emphasize the confidential nature of this. We know that as business owners, how important that can be, that you don’t want your competition to know about the sale. And you don’t want, perhaps at this stage, your employees or other folks to know about the sale. 

So we set a very high bar around confidentiality. And so we’re very cognizant of that. And so whatever that looks like for the business owner, the client, we want to honor that. So however that meeting takes place, we do keep confidentiality at the top. 

Okay, well, great. Well, Van, thanks a lot for some insights into what it takes to think about getting ready to sell when you’re actually in that position of what you need to have together. You know, the idea of just having someone that can really navigate all of it along the entire process. We’ll make sure that your contact information is available for everyone that’s listening today. But thank you so much for your time and giving us some insight here as to what you do when it comes to consulting on business sales. 

Thank you so much, gentlemen. I just want to say one last thing, that business owners, if, you know, if you’re hearing this, working with trusted advisors, whether it’s me, but certainly, you know, these gentlemen and their firm, it’s so important to really have someone to bounce things off of and to take you through, you know, that process. It’s just the way to go. So I highly recommend that you work with these gentlemen and, you know, get it done. So thank you. 

Thank you very much. 

All right. Thank you very much.