by Dominic Sheehan, Financial Adviser and Head of Advice
In 2005, Peter Christman and Richard Jackim, wrote a book called ‘The $10 Trillion Opportunity’. The $10 Trillion in the title references the wave (or more precisely, tsunami) of business sales currently underway as baby boomer business owners enter retirement and look to sell their businesses.
The authors were both mid-market merger and acquisition advisers. In their work, they identified that while some elements of a business sale received a lot of focus (improving financial metrics, marketing the business, etc), other areas of equal or greater importance were overlooked.
To illustrate this, they shared the analogy of a three-legged stool.
The first leg
The first leg of this stool is the business plan. This is the plan that will enable the owner to maximise their business value. For many owners, this leg is the catalyst for a change in strategy, evolving their focus from profitability and drawings toward optimising the sale price.
The second leg
The second leg of the stool is the seller’s personal plan. This is the owner’s plan for life after the sale. A study by the Exit Planning Institute found that 75% of business owners ‘profoundly regret’ selling their business within one year of the transaction. While some of this would relate to sale price or personal cashflows’, from my observations, a larger driver of this outcome is a sense of loss. Loss of purpose, loss of community, and a lot of time on their hands (golf can start to get tedious after the 3rd or 4th round in a week).
The third leg
The third leg of the stool is the seller’s financial plan. When you sell your business, you will lose the cashflows it provides to your household, and you will gain an amount of cash (sale proceeds). This leg is where you model your future cashflows and develop an appropriate investment strategy for the sale proceeds that will provide for you in retirement.
Now, as you know, a stool can stand on three legs (provided they are appropriately positioned), but they cannot stand on one or two.
The $10 Trillion Opportunity challenges the notion that a successful sale is a transaction that achieves a price objective.
While the sale price and the completion of the transaction are critically important components of a business exit, they are not the only things that matter.
I am privileged to have a job where I get to work with people who have sold their business or who are planning to sell their business.
When I talk to my clients about what is most important to them, they rarely tell me their number one objective is to maximise their wealth. Much more common objectives are that they want to have more time to spend with their family, they want to travel or buy toys they have always wanted, or they want to protect their clients, customers, and the legacy they have created. These aspects cover all three legs of the stool.
As you prepare to sell your business, you will work with your lawyer to prepare documents and review contracts. You will work with your accountant to improve financial metrics and prepare financial statements. But who are you working with to prepare you and your family for the reality of life after the sale?
This article was written by Dominic Sheehan, a Financial Adviser who specialises in helping Business Owners and Professional Service Partners prepare to sell their businesses and prepare for life after the sale. Dominic provides a holistic planning and wealth management service designed to help owners protect and grow their wealth and well-being through a business sale.