Your exit strategy: How much is enough?

Selling a business can be challenging. Not only do you have the emotional side to deal with but there are the finances to worry about too. It can be a highly stressful time when you also need to plan for your future. There will be a lot of decisions to be made, not least how much you’ll sell your business for.

Valuing any business can be difficult, after all, there are many different factors to take into consideration. However, when it’s your own, with an emotional attachment, you’re likely to look at it from a very different perspective than others; you may find you have rose tinted glasses on when you assess future growth potential, for example. This is where independent valuations can help. However, even an independent valuation doesn’t mean that securing a sale will be plain sailing.

Waiting for an offer that may never come

Following a valuation, it’s easy to become fixated on the number delivered. However, we’ve seen it before where business owners are holding on waiting for an offer that matches or exceeds this figure, but one never comes. You might reject lower offers believing these are undervaluing your firm.

When this happens, it’s important to weigh up the negative impact of turning down potential opportunities. You’ve taken the initial steps to start selling your business and it’s likely you feel ready to move on to the next phase of your life. Turning down offers that could allow you to live the life you want ultimately costs you time. If your business has been valued at £6 million, you may choose to turn down an offer of £4.8 million, despite this sum delivering what you need to enjoy the comfortable retirement you’ve been looking forward to.

Here, you need to assess what’s important to you. Would you rather hold out for a further £1.2 million, that may not materialise, or begin your retirement now?

What is the value of your business?

There are numerous ways to calculate the value of a business. When valuing it, you’re likely to come up with several different options. Even between professional, independent valuations, there are likely to be some discrepancies. It can make deciding the price to sell at difficult.

However, there’s one key thing to keep in mind here. Ultimately, the value of your business is what someone is prepared to pay for it. On paper, you may decide your firm is approaching the £5 million mark. However, if there aren’t any offers forthcoming at this point, there may be something you’ve overlooked or there simply isn’t a strong market at the moment.

Keeping the value investors are prepared to pay for the business in mind, can help put offers into perspective. Of course, that being said, you shouldn’t accept the first offer that comes along if it doesn’t match your expectations. Compare offers, open a dialogue with potential buyers and be prepared to negotiate when necessary.

How much do you need?

This is a question that can help bring the sale of a business back to you. Selling a business typically marks a new chapter in your life, perhaps you’re looking forward to retiring or having time to invest in your next project. Whatever the reason for selling, it’s probably an emotional one, as well as financial.

Building a clear picture of your life after selling your business and cash needed to fund this lifestyle is imperative for the selling process. With an idea of the lifestyle you want, financial planning can help you map out how this will be funded, whether from the sale of the business alone or by using other sources. Having a defined financial plan can mean you don’t miss out on selling opportunities that could pay for your aspirations.

Cashflow planning can highlight how your wealth will change over time, influenced by the decisions you make. It’s a process that can help you visualise the impact selling your business will have. Want to see how accepting an offer that’s £1 million under the original valuation will have an effect on plans? It’ll help you answer the questions of whether you should accept the offer or wait for an alternative.

By using cashflow planning and building a defined financial plan to understand how much money you personally need to fund aspirations, you can make the right choice for you and your business.

If you’re thinking about selling your business and want to understand how much you need to live your retirement dream, please contact us. With a defined financial plan, you’ll be in a position to understand which offers work for your personal situation.

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