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7 Things to Consider When Selling Your Business

Oct 10, 2023Magazine, Small Business

A once-in-generation shift in business ownership.

That’s what I believe may be coming soon for Alaska’s economy. America’s Baby Boom generation is hitting the traditional age for retirement, and here in Alaska, almost half of all businesses are owned by Boomers. Therein lies a huge opportunity for entrepreneurs looking to take the reins.

I’m one of those Boomers. I arrived in Alaska in 1990, four years after an oil crash that shook Alaska’s economy to its core and made it seem like the state couldn’t escape its boom-and-bust history. However, over the last thirty-plus years, I’ve seen the Alaska economy grow and diversify into what feels like a much more stable business environment.

As an entrepreneur in tourism, I’ve ridden this wave of steady growth alongside other local entrepreneurs who found success in diverse sectors such as oil, telecom, retail, and construction. Many of my peers now find themselves thinking about their next chapter in life.

I, on the other hand, am intrigued by the potential for new ventures in this climate of change. How will this coming era play out? What percentage of business owners plan to exit in the next few years, and why? What do they seek in a buyer, and what challenges do they expect to face? How many expect to struggle to find buyers, and how many will just wind the business down?

To get some answers, I surveyed more than 100 Alaska business owners. Their candid responses offer valuable insights into the potential rewards and pitfalls of selling a business in Alaska.

This article, based on the survey results and my own experience as an Alaskan entrepreneur, is a roadmap for Alaska business owners who are either contemplating a potential sale or seeking to better position their business for a sale.

If you’re one of them, here are seven key considerations to help you make informed decisions about your business—and your future.

1: Know—and Communicate—Why You Want to Sell

When asked what the main considerations were for selling their business, here’s what survey respondents said:

  • 62 percent: Retirement or focus on other interests or hobbies.
  • 11 percent: Raising capital for other investments or pursuing different business opportunities.
  • 11 percent: Taking advantage of market conditions.
  • 9 percent: Relocating to another area.
  • 7 percent: Exiting a difficult market or industry.

Whatever a business owner’s timeline or motivation for selling, transparency about the business makes it easier for all parties to find common ground and work toward a satisfactory outcome.

Yuri Arcurs | Envato

The top response reinforces the idea that a shift is coming. But understanding one’s motivation for selling is key. When I moved to Alaska, determined to find a business to buy, an experienced investor told me, “Always remember: The seller chooses the time to sell.”

Indeed, one of the most important things a buyer will discover in their due diligence is the real reason you’re selling—something that’s very hard to hide from a buyer with any sophistication. Answering this question honestly is the key to building trust with potential buyers, which means being honest with yourself about your motivation.

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For example, sellers will often say they want to pursue other opportunities when they may actually see limited opportunity within their existing business. That’s not necessarily a deal-breaker. Sometimes, a new owner with a fresh perspective and approach can unlock new opportunities.

But hiding your real agenda can raise red flags with buyers. A trustworthy explanation helps align expectations between you and potential buyers. Understanding the full context of your decision can help buyers better clarify how acquiring your business fits into their strategic plans. In negotiations, transparency makes it easier to find common ground and work toward a win/win outcome.

Another mantra I learned in my consulting days: “The facts are friendly.” If your reason for selling is that you feel bored or burned out, say so—just be prepared for buyers to confirm that “boredom” is not the sign of a dying business.

If you are selling because your business is unprofitable, consider targeting buyers within your industry who may have the expertise to turn the business around or bring other synergies. If health reasons are forcing you out, try to plan ahead so buyers can’t “wait you out.”

Whatever your reasons, smart buyers will want to verify them. Transitioning a business is an emotionally exhausting process for both buyers and sellers. The more you share, the more likely it is that the right buyer will commit to get the deal done.

2: Plan Your Next Chapter and Time the Sale Accordingly

Once you clarify why you want to sell your business, give deep, specific thought to what comes next. Doing this before you sell serves two important purposes.

Preserves Happiness: Many people I know feel adrift and unhappy after selling their business. They underestimate the importance of their work relationships, the sense of accomplishment work provides, and—especially for founder/owners—the role their business played in giving them a sense of recognition and identity within the community. Planning for new commitments and challenges before you sell helps you avoid the doldrums.

Quells Uncertainty: It’s hard for an owner to seriously engage in business succession planning when they haven’t done so in their own life. Several business consultants have told me the number one obstacle they encounter is business owners self-sabotaging the succession process because they don’t know what they want to do next. Finding something compelling and meaningful is key to avoid unwittingly falling into this trap yourself.

Define what brings you true fulfillment and happiness beyond financial success. Reflect on your personal values, passions, and the legacy you want to leave. The more concrete the answers are in your mind, the more motivated you’ll be to make the plunge.

Then do it! There will always be risks in selling, like not realizing the return you hoped for. But there is also risk in hanging on too long, like not fully embracing the most important values and relationships in your life.

Here’s when survey respondents said they expect to be able to sell:

  • 31 percent: When they find a buyer or successor who meets their requirements.
  • 18 percent: When the company is worth enough to make selling attractive.
  • 17 percent: They don’t plan to ever transition ownership.
  • 16 percent: When they’re financially secure enough to retire, including any sale proceeds.
  • 15 percent: When they can no longer work for health reasons.

These responses shed light on the risks above. Finding the perfect buyer or achieving the desired value may never materialize. And of course, the unpredictability of life—including health issues—can disrupt plans. Evaluate the timing of your sale in the context of what truly matters to you at your particular stage of life. The odds of successfully selling your business go way up if you have a realistic and flexible mindset about the timing and conditions of selling.

Although most CDL training in Alaska is done through schools like NIT, trucking companies are increasingly offering internal CDL training, Crum says.

At Sourdough Express, a Fairbanks-based freight and moving business, there’s a pipeline to commercial truck driver jobs that starts with hauling furniture and boxes in and out of houses. The company employs 120 people, of which 70 have their CDLs.

Most Sourdough Express drivers received CDL training outside the company, but, where possible, Sourdough Express tries to promote from within, training people as-necessary to get their CDLs, says Josh Norum, business director of operations. Generally people advance from being laborers for the moving business to moving drivers to freight drivers.

”We kind of have a structure. We like to get the most out of guys who work for us so they don’t get bored, get burnt out,” Norum says.

Employees who train to earn a CDL start by reading the Alaska Division of Motor Vehicles CDL manual and a company study guide to prepare for the written test. When they’ve passed the test and have their permit, drivers start practicing with company trucks.

“We have a couple guys at each terminal who we’ve trusted and who enjoy training new people,” Norum says. “The biggest thing with the CDL is just having the seat time to get out and practice.”

Employees usually spend about eighty hours driving by the time they’re ready to schedule a driving test with the Division of Motor Vehicles.

There’s no special government requirement to drive the Dalton Highway up to Prudhoe Bay, but Sourdough requires additional training for drivers who don’t have Dalton Highway experience.

“It takes a lot of trips,” Norum says. “People don’t know how fast the road can bite you. When you’re going loaded, stuff happens faster on that road than any other road in Alaska.”

Employees without experience on the highway spend at least two years driving trucks on paved roads before starting on the Prudhoe Bay service road. To drive the road in the winter, drivers must spend a summer learning the road and make five winter trips accompanied by another driver.

3: Prioritize What You’re Looking for in a Buyer

What do owners expect to be the biggest obstacle in selling their business? The number one answer, garnering 20 percent of responses: “Difficulty finding a buyer who shares the same values or vision for the business.”

This is no surprise. As a business owner myself, I understand the work and sacrifice it takes to build a company. It’s only natural for owners to seek a buyer who appreciates and values the thought and care that has shaped the business.

There will always be risks in selling, like not realizing the return you hoped for. But there is also risk in hanging on too long, like not fully embracing the most important values and relationships in your life.

The popularity of the answer also reflects that many small business owners recognize how integral their employees have been and are deeply invested in their continued well-being.

The sense of gratitude toward customers is also a vital consideration for sellers. Businesses thrive because of the trust and loyalty customers place in them. I, for one, feel indebted to customers who were willing to take a chance on us and who have offered feedback to help shape our products. Finding a buyer who shares a business’s values and understands the importance of maintaining the trust and loyalty of the customer base is paramount.

Here’s the thing, though: while most buyers will say they care about these factors, not all actually do. See the sidebar “The Right Way to Interview a Prospective Buyer” for tips on how you can evaluate the veracity of their commitment to these values.

4: Be Realistic about Valuation

Selling a business is obviously also a financial transaction. Sellers owe it to themselves (and often their beneficiaries) to get the best return they possibly can.

But there can be obstacles. As stated above, shared values was the number one hurdle cited by survey respondents when contemplating a potential sale, and here were the next three:

  • 16 percent: Difficulty finding a buyer who is willing to pay my asking price.
  • 14 percent: I have an emotional attachment to the business, or I don’t know what I would do next.
  • 11 percent: A sale would not generate enough to provide me what I need financially.

All are valid concerns. But potential buyers view valuation through a different lens. They take into account return on investment, industry trends, and growth potential.

That difference can lead to a major disconnect between buyer and seller. In fact, a full 90 percent of the survey respondents believe they know what their business is worth—and even reported a suggested value. However, when I compared those valuations to standard industry metrics, most appear to be significantly overvalued.

Why? A common pitfall for owners is assuming their personal attachment to their business translates into a higher monetary value. Emotional investment and years of hard work can sometimes cloud judgment around asking price.

An independent valuation conducted by a reputable third-party professional can be extremely helpful in determining an appropriate asking price. Not only can this exercise provide a reality check for owners, but it can also offer a credible reference point in negotiations with potential buyers.

Starting a business becomes part of an owner’s identity, so when they are contemplating selling, Alaskan owners often consult with close family and friends more so than with professionals, according to survey results.

seventyfourimages | Envato

The goal of a valuation is not just to assign a dollar value to the business but also to identify key drivers of value and areas of risk that could affect a buyer’s decision. If you know what drives your business’ value, you can work to enhance those areas before offering your business for sale. Similarly, if you know the areas of risk, you can work to mitigate them. And keep in mind, setting an excessively high initial asking price—with the expectation of lowering it if there’s no interest—could cause buyers to see you as an unrealistic seller and steer clear.

And when it comes time to negotiate, sellers should approach the discussions with an open mind and a willingness to consider market realities while still advocating for the value they’ve built.

5: Know How Much Money You Need

Many survey respondents expressed concern that a sale wouldn’t generate enough to provide what they need financially. Yet many business owners don’t really know what that number is.

This is where a financial advisor can help. Most financial advisors have access to forecasting tools that assess how much money you’ll need in retirement, based on your current spending, planned retirement lifestyle, and how long you ideally want to work. The tools simulate thousands of scenarios to estimate the probability of meeting those goals at different spending levels, retirement ages, life spans, and market return environments.

Most financial planners aim for a 70 percent to 80 percent success rate in such a simulation. If the proceeds of selling your business at fair market value put you in that probability range, you’re in good shape.

If the percentage falls short, consider working a few more years rather than attempting to artificially inflate the asking price for your business. Each additional year is an opportunity to contribute to savings, put off drawing down those savings, and realize investment income from your existing nest egg.

6: Explore a Range of Buyer Types

We asked business owners, “When it comes time to sell your business, which of the following potential buyers would you consider or pursue?” Their answers:

  • 45 percent: Unrelated third-party buyer. This group could include a business looking to expand, a private equity firm, or an individual entrepreneur. It often provides the highest monetary return, but the transition can sometimes be challenging for your current employees and company culture.
  • 37 percent: Current management team or key employees. This scenario often comes through an Employee Stock Ownership Plan. It’s a great way to reward those who have been instrumental to the business’s success and ensure a smooth transition, since the buyers already understand the business well. However, it may be hard for the existing team to raise the necessary capital and often results in a slower payout for the seller.
  • 34 percent: Children or other family members. This option can be a wonderful way to ensure that the business legacy continues. But family dynamics can complicate business decisions, and family members may lack the skills or interest to run the business successfully.

7: Bring in Professional Guidance

One of the survey’s most interesting findings came from asking about who a seller will or has sought out for advice. The responses are especially compelling when compared with answers to the same question in the 2022 Business Enterprise Institute survey of Lower 48 businesses, as seen in the table “Who Advises Business Owners? Alaska vs. the Lower 48.”

There’s clearly a stark geographic difference when it comes to a seller’s chosen advisors. Alaska business owners lean much more heavily on friends and significant others than on accountants or lawyers compared to those in the Lower 48. Why? Perhaps our smaller, tight-knit community fosters a greater reliance on friends, spouses, and business owner peers. It could also be that the surveyed businesses in Alaska are smaller than their Outside peers.

Regardless, each cohort above can play an important role in the sale process.

Business Owner Friends: Previous buyers and sellers can share lessons learned about negotiation strategies, deal structure, and pitfalls. They can also offer guidance on exit planning, such as strategies to maximize the business’ value before the sale. Those who operate in the same or a related industry can be especially helpful.

Spouse/Significant Other: Spouses witness firsthand the sacrifices and challenges business owners face. They also intimately understand the owner’s personal goals and future aspirations and can help decide if a particular offer aligns with them. A spouse can also be a pillar of emotional support during the often stressful and emotional process of letting go.

CPA/Accountant: Most buyers will request financial statements going back at least three years, and a proficient CPA or accountant can ensure these documents are accurate, current, and adhere to accepted accounting standards. Don’t skip this step: detailed, transparent, and well-documented records create a strong first impression and can convey that a business is well-run and trustworthy. CPAs can also help interpret financial metrics, identify potential areas of concern, and advise on the tax implications of a sale—including any capital gains taxes—providing a more accurate picture of the potential returns.

Business Lawyer: A knowledgeable legal advisor, especially one with plenty of deal-making experience, can draft key documents like non-disclosure agreements as well as sale and purchase agreements. They can also review term sheets and negotiate contract provisions that may make a significant difference in the final result. A good lawyer will know what’s standard and what’s negotiable—and how to protect your interests during the sale process.

Business Coach/Advisor: A good consultant or coach can help you assess how saleable your business currently is and take steps to enhance its value to prospective buyers. Unless you plan to sell to another owner/operator, owner dependency and key-person risk is a concern for most buyers. You can take steps to ameliorate that by building a capable and committed management team that can drive business operations and growth. And don’t forget that documenting and streamlining operations can also ease the transition for a buyer.

Banker: A business with valuable, unencumbered assets is more attractive to most buyers. Assets like equipment and real estate can help a buyer secure bank financing on favorable terms, allowing them to structure a more attractive offer and give you more liquidity up front. If you have a relationship with a bank, explore how their bankers can help you facilitate a quicker and smoother sale process.

The Path Forward

I sometimes look back with nostalgia at the early days of my business. Everything was on the line—my personal savings, my pride, my reputation. I worked hard, and the business has thrived. Of course, over the years, as any business grows and establishes value, there can be a natural tendency to become more risk-averse, to protect what we have built.

Yet it’s possible to hold on too long. I have seen Alaska business owners who, settled into their comfort zones, ended up stifling their top employees or otherwise hindered future growth. Don’t let that be you. When the time comes to move on, I hope the ideas I’ve shared will help you navigate the exit process with confidence. Selling at the right time and in the right way can honor the relationships you’ve nurtured and leave behind a positive legacy. It can also create an opening in your life for new possibilities, personal growth, and deeper meaning.

Bob Kaufman is founder of Alaska Channel, Alaska’s market leader in travel media and out-of-home advertising. He is also an active investor, with extensive experience in business buyouts and growth companies. Reach out at bob@alaska.org if you want to learn more about this topic.

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