July 5, 2023

Looking to Sell Your Business? Key Steps for Inland Empire Businesses to Take

By Patrick Lizza, UBS Financial Services Inc., Aligned Wealth Partners

The Coachella Valley is currently home to 463,000 permanent residents. According to the Coachella Valley Association of Governments (CVAG) and the Southern California Association of Governments (SCAG), the population of the Coachella Valley is expected to grow to 884,000 by 2035. According to MBAStack, Gen X-ers own the highest percentage of small businesses at 46%, and their relative share is increasing although Baby Boomers still own approximately 40% of privately-owned small businesses and franchises in the US. With these groups nearing retirement age, and the near doubling of population anticipated in the Coachella Valley, many local business owners may be considering selling their businesses within the next decade.

Is it too early to plan for that sale?

When is too early to start planning for the sale of your business? Is 5-6 years out, or more, too soon? According to research from wealth management firm UBS, it is never too early. However, many business owners haven’t done much actual planning regarding an exit. They are busy running the business: raising capital, managing staff, ramping up sales. More than 58% of business owners have had no outside appraisal of their businesses, according to a UBS Investor Watch. Nearly half have no formal exit strategy, and 41% say they aren’t sure what they’ll do with their time or money after they sell.

Unfortunately, lack of planning may result in a lower valuation when the business owner is ready to sell. Selling a business may take 6 months to 2 years or more – and often, as much as 80% of the business owner’s financial assets are tied up in the business. Many advisors recommend owners start planning for their eventual exit from the first month of running their business – and definitely 2-4 years before retiring.

Get the business ready to sell

Most businesses have a “range of value” for sale price. It is important for financial records to be in good order to make it easy for a prospective buyer to assess. Being transition-ready can help to increase sale value; being “best-in-class” may receive highest value. If sales are not as high as the owner might like, it could be beneficial to bring in a senior sales associate. Business owners want to have the right team in place to manage the business when they are gone.

Some ways to increase the value of a business may include:

  • Sales
    • Expand customer base
    • Formalize growth strategy, extend key customer contracts
    • Business operations
  • Solidify corporate governance
    • Address and reduce legal risks
    • Extend key vendor contracts
    • Put business documents in order
  • Marketing
    • Build brand equity and reputation through PR and marketing
    • Modernize website and online presence
  • Financials
    • Organize/audit financial statements
    • Develop formal budgets and forecasts per department
    • Ensure high quality earnings analysis
  • Clear leadership transition plan
    • Develop/maintain an organization chart
    • Put in place a strong middle management team and experienced senior managers
    • Establish key employee agreements

Exit and Sale: Work with a Deal Team

Business owners’ needs can vary depending on where the business is in its own cycle; however, the next step in getting the business ready is to build a “Deal Team.” This consists of a wealth manager or exit planning advisor, tax professional (CPA), Mergers & Acquisitions or transaction attorney, and investment banker. One of these advisors can act as the “quarterback,” guiding the business owner each step of the way and helping to minimize emotional aspects. The quarterback can help owners determine the best option(s) for their business and may be responsible for bringing in prospective buyers, usually two or more, to create competition.

  • When ready, several options for sale exist:
    • Outright sale: Sell 100% of the business to a buyer from the same industry or with a complementary business model, known as a merger and acquisition. This could be a private or public company.
    • Employee Stock Ownership Plan (ESOP): Sell the business at fair market value to employees through a tax-advantaged, leveraged buyout. Owners might consider an ESOP to provide for employees and see the business continue when an obvious choice for CEO/president and team, who may have been with the company for a long time, are in place.
    • Recapitalization: If a 100% sale is not desired, the owner may be able to sell a majority or minority equity stake in the company for asset diversification and to gain some liquidity. This allows owners to retain some control while de-risking and taking out some cash; this sale usually goes to private equity firms or new partners.
    • Legacy succession: Transition ownership to the next generation of family members, typically adult children or grandchildren, by way of sale, gift, or combination. This works better when the children have been involved in the business and want to maintain it.

Plan for the Post Exit
Once the business is sold, the former owner should have a plan in place to safely use their assets over the long-term.

Although exact time frames may vary, take the time to look at three critical periods when planning for money gained from the sale*:

  • Liquidity – these are the assets the owner will need for the immediate few years following exit, covering spending when no income is incoming. These assets are often held in cash, money markets, treasuries, and fixed income vehicles.
  • Longevity – these assets cover approximately the next decade. The portfolio needs to generate income, to be able to replenish liquidity.
  • Legacy – this includes money that the former business owner may wish to leave to the next generation or philanthropies. This money can be invested in growth-oriented investments that may not need to be used by the owner.

Ultimately, the best business owner strategies are subject to individual goals, objectives and suitability, which is why it’s good to work with your financial advisor. While no one can promise or guarantee that wealth or any financial results can or will be achieved, taking a step-by-step process can help business owners to be better prepared for exit.

*Timeframes may vary. Strategies are subject to individual client goals, objectives and suitability. This approach is not a promise or guarantee that wealth, or any financial results, can or will be achieved.

Author Patrick Lizza
Pat Lizza is the market director and a financial advisor in the Indian Wells office of UBS Financial Services Inc Member FINRA/SIPC as a member of Aligned Wealth Partners. He joined UBS in 2011 and has worked with the team to build a comprehensive wealth management business serving select professionals, entrepreneurs, retirees and their families. With financial planning at its core, the team recognizes that every client has a unique set of circumstances and aspirations and employs a detailed discovery process that enables them to deeply understand both the client’s financial data and importantly, their values, goals, and relationships. This holistic approach enables the team to develop customized strategies specific to the client’s needs which seek to maximize the probability that their objectives are achieved. Pat and his wife, Tricia, live in La Quinta and have two grown children, Meg and Hogan. He can be reached at [email protected]

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. 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 UBS Financial Services Inc. Neither UBS Financial Services Inc. nor its employees (including its Financial Advisors) provide tax or legal advice. You should consult with your legal counsel and/or your accountant or tax professional regarding the legal or tax implications of a particular suggestion, strategy or investment, including any estate planning strategies, before you invest or implement. As a firm providing wealth management services to clients, UBS Financial Services Inc. offers investment advisory services in its capacity as an SEC-registered investment adviser and brokerage services in its capacity as an SEC-registered broker-dealer. Investment advisory services and brokerage services are separate and distinct, differ in material ways and are governed by different laws and separate arrangements. It is important that you understand the ways in which we conduct business, and that you carefully read the agreements and disclosures that we provide to you about the products or services we offer. For more information, please review client relationship summary provided at ubs.com/relationshipsummary, or ask your UBS Financial Advisor for a copy.


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