A Professional And Personal Perspective

Steven Furtado, Portfolio Manager and Co-Founder of Savoir Wealth | Driving Financial Literacy and Tailored Solutions for Business Owners

Before transitioning into wealth management, I spent nearly two decades running a family business, which we successfully exited nearly six years ago. That experience gave me firsthand insight into the challenges and rewards of navigating a business exit.

Today, my career focuses on helping business owners manage their wealth and plan for a secure future. One common theme I’ve observed across industries is the gap in mental and financial preparation many business owners face when considering a sale or exit.

For many entrepreneurs, the idea of selling their business is both daunting and bittersweet. After all, businesses are built with immense pride, sacrifice and an investment of time, energy and resources. Yet, the decision to sell is often delayed until a catalyst event—a life change such as the birth of a grandchild, a health issue (either personal or involving a loved one) or simply hitting a point of burnout, often tied to the challenges of managing employees. Waiting for such an event to spur action, however, can have unintended consequences, especially when it comes to the financial health of the business.

The Importance Of A Long-Term Exit Strategy

With our clients, we advocate for a proactive approach to exiting a business, ideally beginning preparations five to 10 years before the potential sale. While even half a decade may seem like an eternity to a business owner consumed with day-to-day operations, this runway is essential for maximizing the value of the business. It allows time to address inefficiencies, optimize operations, tax-plan with intention and position the company for a lucrative sale.

For many owners, though, the idea of planning so far in advance is understandably overwhelming. There is a deep emotional attachment to the business, and the thought of letting go often feels like letting go of a part of themselves. However, framing this process as an opportunity to transition rather than an end can make it less intimidating and far more advantageous.

The Cost Of Waiting For A Catalyst

Let’s consider the case of a dentist, an owner-operator who has built a thriving practice over 20 years. As the dentist nears retirement age, they decide to scale back their hours, reducing their schedule from five days a week to three to enjoy more leisure time. While this adjustment aligns with their personal goals, it unintentionally sets the value of their business on a downward trajectory. Over time, their practice’s production diminishes, potentially resulting in a lower EBITDA (earnings before interest, taxes, depreciation and amortization), and thus a potentially lower sale price.

For instance, if the dental practice’s annual revenues drop from $4 million to $2 million over a few years, this decline could significantly impact the practice’s sale value. The reduced production could result in leaving millions on the table. This scenario illustrates the importance of addressing these trends early and planning for an exit while the business is performing at its peak.

Selling At The Right Time

Rather than allowing the natural decline in production to dictate the timing of a sale, business owners should consider selling while the business is still thriving. For our hypothetical dentist, this might involve hiring an associate or implementing high-margin procedures to sustain or even increase production. Preparing the business for sale at its height allows the owner to maximize its value and secure a strong financial foundation for the next phase of their life.

It’s also essential to recognize that an exit doesn’t have to mean an abrupt departure. Many sales agreements allow for a transition period, enabling the owner to gradually reduce their workload while handing off responsibilities to new management. This approach offers the best of both worlds: financial security and a lighter workload without sacrificing the business’s valuation.

Overcoming Emotional Hurdles

One of the most significant barriers to selling a business is the emotional weight of the decision. For many owners, their business is not just a source of income but an integral part of their identity. The prospect of selling feels like closing a chapter or even an entire book. But it’s important to remember that selling a business can be a gateway to new opportunities.

The financial freedom gained from a well-planned exit can open doors to new ventures, hobbies or even philanthropic efforts. It’s an opportunity to channel time and energy into projects that align with personal passions and values. Reframing the sale as the start of a new journey rather than the end of the current one can help ease the psychological burden of letting go.

A Final Word Of Advice

Selling a business is one of the most significant decisions an owner will ever make, and it deserves careful thought and planning. Don’t wait for life to dictate the timing, whether through a health scare, burnout or other catalyst events. Instead, take control of the process by planning early and positioning your business for a strong and calculated exit.

Selling at the right time, with the right preparation, ensures you capture the full value of your hard work and leaves you with the resources to pursue the next chapter of your life. Whether that’s travel, spending time with family or launching a new venture, a successful business exit can provide the freedom and security to live life on your terms.

So, don’t fear selling “on the rise.” By planning ahead, you can unlock the financial and emotional rewards of a well-executed exit, allowing you to focus on what matters most, both professionally and personally.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

Forbes Finance Council is an invitation-only organization for executives in successful accounting, financial planning and wealth management firms. Do I qualify?