STEP 1: Determine What You Want/Need from the Transition
After determining that the company’s valuation supports the transition and that the business is ready to sell, you’ll need to calculate your personal financial needs. This is generally a four-step process:
- Consider the costs of supporting your current and future lifestyle. Tally up your obligations (now and in the future), such as helping support an aging parent or paying your child’s college tuition.
- Ask yourself one of the most challenging questions you’ll ever face: What do you want to do now? Be honest with yourself. Do you want to:
- Start a new business (which will require capital)?
- Get another job?
- Stay on as a consultant to the business you’re selling?
- Consider your income needs. Be sure to account for the long-term income you can expect from the sale proceeds, as well as your savings and any future income.
- Work with your accountant and/or attorney to structure your transition and payout in a way that suits your needs. That structure might very well depend on the buyer.
- If you’re selling the business to an individual, chances are you’ll receive cash, either in a lump sum or in installments. However, you could also negotiate a plan to lease some of your assets to the buyer, so you’ll have ongoing income. (This could ease the upfront burden on the buyer, as well.)
- If you're selling to your employees or to a corporation, you might receive cash plus stock or options. You might negotiate a contract to stay on as consultant at a set fee for a period of time.
Food For Thought…
The buyer might ask that part of your compensation, if you take on a consulting role or have some involvement in the business, be tied to the company’s future performance. Examine any such offer carefully, whether it involves stock or other arrangements, because of the risk it carries.