The construction industry is booming, and there doesn’t appear to be an end in sight. That’s great news if selling your small business is anywhere on your radar.
As someone who has built a successful business, maybe you have started to think about the next phase of your life. That could be pivoting into a new career or getting ready for retirement. Either way, selling a small business is an exciting step but it takes intention and preparation.
If you’re considering selling your business to employees or a family member, then you have one of the key components of the sale in place. You’ve got 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 still important to ensure you’re mentally prepared for the transition and that you’ve gotten everything to navigate the sales process successfully.
Selling a Small Business to Employees or Loved Ones
For contractors and other small-business owners, selling what you’ve worked so hard to build can be bittersweet. It’s exciting to move to the next phase of your life, but you want to know that your business is going to end up in the right hands.
Selling to a key employee or family member can be a very fulfilling 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 vision for the business, and are well positioned to successfully take over operations.
So, if you’re preparing to take the leap, here are some tips for how you can best prepare to hand over the reins. Being intentional in your preparation can help facilitate a successful sale.
1. Know Your Why
As with all big decisions in life, knowing your “why” gives you direction and perseverance. When you can remember and reflect on the reasons you’re moving on from your business, it will likely keep you inspired when challenging moments arise and the finish line feels out of reach.
The reality is that selling a business can be arduous. Even if you already have a buyer in mind, and that buyer is someone you know, this can be a complex process that sometimes requires patience and stamina.
2. Plan Ahead on Finances and Personnel
Give yourself ample 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 financial professionals to make sure your financial house is in order. This can help your buyer understand the current state of the business and can soothe any concerns they may have about assuming responsibility for the company you’ve built.
Maybe your timeline for selling the business is a few years down the road. If that’s the case and you have an employee or family member interested in buying the business, take the time to prepare them mentally for filling your shoes.
The employee mindset is very different from that of a business owner. To prepare someone you have a vested interest in for success, teaching them what you know outside of day-to-day operations is key. Teach them what you know before they take over. This will likely ensure all goes well once you’ve fully stepped away from the business.
3. Get a Professional Valuation
Determining the value of anything can be complicated. What a business is worth to one person may not be what it’s worth to another. A more motivated buyer might be happy to spend above the asking price to secure your business if they have their heart set on it. A less motivated buyer, however, may not be willing to pay the same top dollar.
There is enormous value in having an independent professional determine the fair market value of your construction company. 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 keep the sale neutral and can save valuable relationships.
Obtaining an assessment of value determined by an objective third party can provide an excellent starting point for negotiations and help eliminate discord if you and your potential buyer aren’t on the same page about 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 take monthly payments from the buyer for a specified period. The promissory note is often backed by the assets of the business and buyer’s 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 the close. Making ongoing installment payments could make their dream of business ownership attainable. Since you have built a stable business with consistent cash flow, you have a good sense of future performance barring major economic shifts.
5. Notify Your Clientele
You’ve worked hard to earn the trust of your clients, and that’s priceless. More than likely there are people who hire you on an ongoing basis. Those relationships are the lifeblood of a successful company.
Whether these key clients are homeowners, interior designers or home builders, keep them in the loop once it’s finally determined the business is changing hands. Selling a business to employees or family members probably means you’re extra invested in a smooth transition. Communicating openly and effectively to your clientele 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 get to turn over what you’ve built to someone who will put as much care and attention into it as you did.
Even when you have a buyer already in mind, selling a small business can be an overwhelming process. It doesn’t have to be.
Knowing your “why,” planning carefully, getting a professional valuation, determining the structure of the sale, and notifying your clientele can set you up for success as you transition to the next season of life. You’ll also help position your key employees or loved ones for the fulfilling endeavor 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 through Commonwealth Financial Network®, member FINRA/SIPC, a Registered Investment Adviser. Fixed insurance products and services offered through CES Insurance Agency. Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.
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