The construction industry is booming, and there doesn’t seem to be an end in sight. This is great news if selling your small business is on your radar.
As someone who has built a successful business, you may have started thinking about the next phase of your life. It could be embarking on a new career or preparing for retirement. Either way, selling a small business is an exciting step, but it takes intention and preparation.
If you are considering selling your business to employees or a family member, then you have one of the key selling points in place. You have a potential buyer! Having a buyer already in mind changes the process. You probably won’t have to hire (or pay) a business broker, and you won’t have to go through the process of marketing your business or vetting interested parties.
It’s always important to make sure you’re mentally prepared for the transition and have everything you need to successfully navigate the sales process.
Selling a small business to employees or relatives
For entrepreneurs and other small business owners, selling what you’ve worked so hard to build can be bittersweet. It’s exciting to move into the next phase of your life, but you want to know that your business is going to end up in good hands.
Selling to a key employee or family member can be a very rewarding experience. They already understand what you do and, in the case of key employees, they know the ins and outs of your business. Your best employees share your work ethic, understand your business vision, and are well positioned to successfully resume operations.
So, if you’re about to take the plunge, here are some tips to best prepare you to pass the baton. Being intentional in your preparation can help facilitate a successful sale.
1. Know your why
As with all major decisions in life, knowing your “why” gives you direction and perseverance. When you can remember and reflect on your reasons for leaving your company, it will likely keep you inspired when tough times come around and the finish line seems out of reach.
The reality is that selling a business can be tough. Even if you already have a buyer in mind and that buyer is someone you know, it can be a complex process that sometimes requires patience and endurance.
2. Plan finances and personnel in advance
Give yourself enough time to prepare for the sale of your business. This is a big decision and the better you plan, the smoother the process can be. Work with your finance professionals to ensure your financial house is in order. This can help your buyer understand the current state of the business and can ease any concerns they may have about the liability of the business you have created.
Maybe your business sales timeline is a few years away. If so, and you have an employee or family member interested in buying the business, take the time to mentally prepare them to fill your shoes.
The mindset of employees is very different from that of a business leader. To prepare someone you have a vested interest in succeeding, it’s essential to teach them what you know outside of day-to-day operations. Teach them what you know before they take over. This will likely ensure that everything will run smoothly once you step away from the company completely.
3. Get a professional appraisal
Determining the value of anything can be complicated. What a business is worth to one person may not be to another. A more motivated buyer might be happy to spend more than the asking price to secure your business if they care. A less motivated buyer, however, may not be willing to pay the same high price.
It is extremely important to hire an independent professional to determine the fair market value of your construction business. When you’re selling a business to employees or family members, emotions can get involved because it’s more personal. Removing emotion from the process will likely maintain the neutrality of the sale and can save valuable relationships.
Obtaining a value assessment determined by an objective third party can be an excellent starting point for negotiations and help eliminate discord if you and your potential buyer disagree on the price.
4. Determine the structure of the sale
An installment sale is a common way to structure the sale of a small business to employees. In an installment sale, you as the seller typically hold a promissory note and agree to receive monthly payments from the buyer for a set period of time. The promissory note is often backed by business assets and buyer collateral, which can help mitigate risk.
An installment sale can be a good solution for both parties involved. Your employee or family member may not have the cash or access to financing to complete the sale in full at closing. Making installment payments could make their dream of becoming a business owner achievable. Since you’ve built a stable business with steady cash flow, you have a good idea of future performance barring major economic changes.
5. Inform your customers
You’ve worked hard to earn your customers’ trust, and it’s priceless. More than likely, there are people who hire you on an ongoing basis. These relationships are the cornerstone of a successful business.
Whether those key customers are homeowners, interior designers, or home builders, keep them posted once it’s finally determined that the business is changing hands. Selling a business to employees or family members likely means you’re investing more in a smooth transition. Communicating openly and effectively with your customers can set your buyer up for success.
Be prepared before selling your small business
Selling a business to employees or family members can be an incredibly rewarding experience. You can hand over what you have built to someone who will give it as much care and attention as you do.
Even when you already have a buyer in mind, selling a small business can be an overwhelming process. It is not obligated.
Knowing your “why”, planning carefully, getting a professional appraisal, determining the structure of the sale and educating your clientele can set you up for success as you transition into the next season of life. You will also help position your key employees or loved ones for the fulfilling business ahead.
CG Capital is located at 139 Genesee Street New Hartford, NY 13413 and can be reached at 315-765-6032. Securities and advisory services offered by Commonwealth Financial Network®, Member FINRA/SIPC, a registered investment adviser. Fixed line insurance products and services offered by CES Insurance Agency. The Certified Financial Planner Board of Standards Inc. holds the CFP®, CERTIFIED FINANCIAL PLANNER™ certification marks in the United States, which it awards to individuals who successfully complete the CFP Board’s initial and ongoing certification requirements.
Co-Founder, CG Capital™
Chris Giambrone is co-founder of CG Capital™, a wealth management firm based in New Hartford, NY. He is a CERTIFIED FINANCIAL PLANNER™ and Accredited Investment Fiduciary® (AIF®). Chris also earned a certificate in retirement planning from the Wharton School of Finance at the University of Pennsylvania.
Branch address: 139 Genesee St., New Hartford, NY. Securities and advisory services offered by Commonwealth Financial Network, member FINRA/SIPC, a registered investment adviser.