5 steps you shouldn't miss when selling your company
- By Jamie Waldren
- Dec 09, 2011
If you own a government contracting firm, you are probably counting on the sale of your business to fund part or all of your retirement. You’ve invested years building your business, and you plan someday — maybe someday soon — to sell your firm and live comfortably off the proceeds.
Unfortunately, many smart and successful owners commit fundamental mistakes that make it impossible to get the most out of the company they’ve worked so hard to build. But with a little planning and foresight you can sell your firm for its full value.
With that in mind, here are five of the most common pitfalls that could spoil your retirement dreams.
1. Choosing the Wrong Time to Sell
As the owner of a government contracting firm, your work demands your constant attention. It’s very easy to spend all your time building your business and doing the work but none of it involves planning for your firm’s eventual sale. You tell yourself that when it’s time to move on you’ll simply put the company on the market or sell to another stakeholder.
But just because you are ready to sell doesn’t mean your business is in a position to command an attractive price. If the company’s growth and profits aren’t optimal, for instance, you stand to leave a significant amount of money on the table. And if you time your exit when capital markets aren’t receptive to acquisitions, your pool of potential buyers — and prospects — could be diminished.
A far better approach is to prepare your company for sale when market conditions are favorable. While this scenario gives you less control over when you exit, it gives you the best chance of receiving a premium valuation.
2. Not Having Experienced Advisers
Selling your business is a very complex process. No single individual has the expertise to navigate all the legal and financial details of a sale. You need a team of accounting, legal, investment banking, wealth management and other specialists to help you negotiate the best terms to prepare your personal finances for life after your business. If you try to go it alone without the benefit of specialized expertise, you put your post-business lifestyle at risk.
3. Failing to Plan in Advance
Whether you intend to sell in a year or in a decade, you should have a plan in place now. Without one, you will find yourself reacting to events rather than anticipating them — which is never good for the sale of your business. The more you understand today how the process will work tomorrow, the better your decision making will be.
An exit plan will allow you to recognize optimal market conditions and guide you through the sale process when the time arrives. Perhaps best of all, it takes some of the uncertainty out of your future. A wealth management professional who understands your business can help you set achievable goals and develop a thoughtful exit strategy.
4. Not Considering the Tax Implications of Your Sale
Taxes can eat up a significant portion of the income you receive from the sale of your business. In fact, many sellers are surprised by and unprepared for the magnitude of their tax bills. But if you plan ahead and work with qualified professionals, you may be able to structure your deal to minimize capital gains taxes. Deal structures that provide tax relief for the buyer usually impose higher taxes on the seller, and vice versa. So failing to understand the complexities of the deal almost certainly will land you in a disadvantageous position.
5. Neglecting to Have Your Company Appraised
Many owners are depressed to learn how little their business is worth in the marketplace. They learn too late that the sale won’t adequately fund their retirement. That’s why it’s so important to have a professional appraisal of your company — even long before you intend to sell. Why? When you know your situation upfront, you have time to adjust your personal investment plan and retirement expectations. It also gives you incentive to invest further in growing your business.
How to Choose the Best Exit
Selling your government contracting company is not something you should ever take for granted. It’s far too easy to throw away potential value if you don’t know what you are doing.
If I could offer just one piece of advice, it would be this: Don’t tackle your sale alone – potentially fatal mistakes lurk at every turn. A successful sale — one that meets your expectations — takes careful advance planning and a great deal of expertise. Work with a team of professionals who not only understand how to sell a business and build personal wealth, but have extensive experience with government contracting companies. Govcon firms have unique characteristics that can make a sale tricky, and you don’t want your consultants learning during your sale.
If you haven’t already, get started planning today. Or it may be too late to achieve your goals.
The information contained in this article is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives. Investing involves risks and there is always the potential of losing money when you invest. The views expressed herein are those of the author and may not necessarily reflect the views of Morgan Stanley Smith Barney LLC, Member SIPC, or its affiliates.
Tax laws are complex and subject to change. Morgan Stanley Smith Barney LLC, its affiliates and Morgan Stanley Smith Barney Financial Advisors or Private Wealth Advisors do not provide tax or legal advice. This material was not intended or written to be used for the purpose of avoiding tax penalties that may be imposed on the taxpayer. Clients should consult their tax advisor for matters involving taxation and tax planning and their attorney for matters involving trust and estate planning and other legal matters.
Jamie Waldren is the founder of the Waldren Group at Morgan Stanley Smith Barney and a Financial Advisor with the Global Wealth Management Division of Morgan Stanley Smith Barney in Columbia, Maryland. He specializes in working with government contractors.