Money Matters

Business Sale and the Need for a Three-Legged Stool

28 May 2021 by: Brian Matter 

“Am I ready to sell my business?”  

The Exit Planning Institute’s State of Owner Readiness Survey shows most business owners will not be ready and those who do exit their business are not happy with the transaction. The survey shows that: 

  • One year after selling, three out of four owners surveyed “profoundly regretted” the decision to sell.
  • From 70–80% of businesses put on the market do not sell.
  • Only 30% of all family-owned businesses survive into the second generation.

All business owners who have grown their business past the seed stage have thought about exiting it. While an owner may be ready to sell and a business may be attractive to a buyer, if a sale is the only factor the business owner is considering, they will likely have an unsuccessful exit. Why? Many business owners only focus on business goals. To have a more successful sale and business exit, we believe all business owners should focus on the “three-legged stool” of:

  • Life after business planning
  • Personal financial planning
  • Maximizing business value

Aligning these three legs of the stool will allow you to successfully grow and transition your business to reach goals in each area of your life. All legs of the stool are of equal importance, as each addresses separate but overlapping parts of your life. Here are some considerations for each area.

Life After Business Planning

From CCMI’s experience, this is the most overlooked area for business owners, as they are focused on growing or maintaining their business. Areas to focus on include family and friends, self-worth, self-identity, charitable or community considerations, health considerations, hobbies and fun, and religion and beliefs. Questions to consider include:

  • Who will I spend my time with?
  • What is my purpose when I’m no longer growing a business?
  • How will I identify myself if I no longer am a business owner?
  • What will I do with my time? (There is only so much golf you can play in a week!)

In our experience, business owners who have not given thought to these areas are usually unhappy in retirement because they feel lost.  

Personal Financial Planning

At CCMI, we spend most of our time with business owners helping them establish their personal financial plan. Areas to focus on include income requirements, risk management to protect their wealth, cash flow planning in retirement, gifting to children or charity, long-term healthcare, and estate planning in retirement. Questions to consider include:

  • How much do I need to sell my business for to be financially independent in retirement?
  • Can I achieve my personal objectives without the income from my business?
  • What are my needs and wants?

The financial planning leg of the stool will drive decisions made within the business on how much you need to save during your working years or how much you need to sell to achieve your goals in retirement.  

Maximizing Business Value

Many business owners struggle with the concept of maximizing the value of their business, rather than focusing on income. The transferrable business value is important, as it will allow you to ultimately sell your business to hopefully align with your financial goals. Areas of consideration include the financial health of the business, management and personnel, systems and documentation, risk management, growth factors, the reliability of income streams, and where the business falls on the range of multiples for the industry.  

It is no surprise that so many business owners profoundly regret the sale of their business, as they often fail to align their business goals to their own personal and financial goals.

CCMI is here to help you evaluate your three-legged stool—how your life after business, personal finances, and business goals align to provide you the future you deserve. Let one of our advisors know if we can help you plan how to align the three legs of your stool. 

CCMI provides personalized fee-only financial planning and investment management services to business owners, professionals, individuals and families in San Diego and throughout the country. CCMI has a team of CERTIFIED FINANCIAL PLANNERTM professionals who act as fiduciaries, which means our clients’ interests always come first.
How can we help you?

As a CERTIFIED FINANCIAL PLANNER™ professional, a Certified Private Wealth Advisor® designee, a Certified Exit Planning Advisor®, and a business owner, Brian specializes in helping business owners navigate their financial lives. In addition to his role as principal and owner, Brian guides clients in investment selection, risk management, estate planning strategies, succession plans, retirement options, and generational wealth planning and also serves as CCMI’s Chief Compliance Officer.

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