Palm Springs, CA

According to the most recent census data, there are more than 1500 businesses in Palm Springs, and nearly 25,000 households. A third of the overall population is 65 and over – and many of them are business owners.

If you’re a local business owner in your 50s or 60s, you may be looking toward retirement. Whether this is the case, or you are looking to capitalize on your business or make a change, planning for the sale of your business is important.

With rising inflation, supply chain issues, and recessionary fears, business owners might assume the current environment might not bode well for a sale. Yet, estimates from Bloomberg indicate dealmaking continued to remain above historical averages for the first half of 2022, with many also optimistic overall about the rest of this year and next. And every business situation is unique.

Whether you are looking to sell in the near future or within the next decade, experts agree that planning in advance is important. Given today’s rapidly changing business environment, finding the time to do so can be difficult. However, by first identifying your desired outcomes and a strategy to help achieve them, it may be easier to obtain intended results.

Following are considerations for you, your family and partners on this important next step.

What Do I Want from My Business? And Life?

A good place to start is by taking the time to better understand what you want. Following are simple, yet important, questions to consider:

1. What do you want to accomplish in life?
2. Who are the people that matter most to you?
3. What do you want to leave as your legacy?
4. What are your main concerns?
5. How do you plan to achieve your life’s vision?

You may not be able to answer all of these at first glance, but each deserves careful consideration. The answers, of course, will also change over time as priorities shift. In any case, it is important to align your values with your intended future outcomes in mind.

The information that emerges can be invaluable in effectively managing business assets pre-sale, structuring the sale optimally, and developing a strategy for the proceeds from and life after the business.

What Are My Financial Needs?

Almost all families have a minimum price at which it is practical to sell their business. That floor represents the asset pool needed to pay for their future lifetime spending. Doing financial planning prior to making a decision on business transition is important so that options can be fully assessed to plan for the future. It is better to find out early if the business sale may not generate the assets needed to maintain one’s lifestyle rather than proceeding down the road of negotiations to sell and finding out when it is too late. 

In addition to assessing a minimum price for selling a business, it is also important to consider your own personal financial needs, including:

1. Immediate cash flow needs—short-term expenses (such as general living and entertainment, taxes, utilities) and any other expected income (such as Social Security and/or pension income) over the next three years.
2. Future needs—any assets, retirement needs, healthcare and long-term care expenses you and your family will need, along with potential earnings you may receive, four years from now to throughout your lifetimes.
3. Giving back—your desire and ability to give back to family, organizations or causes, now and in the future.

In some cases, business owners are able to sell their businesses sooner than expected. Others may decide to postpone the sale and focus on making changes to increase the value of the business.

As an example, we were hired to do a financial plan for a locally owned construction company, who wanted to assess how much he had to realize from the sale of his business on a net basis to not run out of money over his lifetime. We did the planning, determined that figure, and discussed transition options for the business. Reviewing options led to an opportunity to implement an employee stock ownership plan (ESOP) for the transition of the business. This enabled the client’s brother, two daughters and their husbands, who all worked in the business, to continue the business. The planning process also allowed us to help the client with retirement asset decisions as well as life insurance and long-term care optimization. And it
helped the business owner to know where he stood financially and better plan for what he wanted in the near and long-term.

Am I in Alignment with What My Partners Want From the Business?

While it might have been taboo to discuss business exits in the past, it is now also recommended that founders collectively check in with each other for an “exit talk” annually. The goal is to understand each partner’s appetite for a sale and ensure alignment. In “Exit Right: How to Sell Your Startup, Maximize Your Return and Build Your Legacy,” authors Mark Achler and Mert Iseri recommend that founders collectively consider:

1. What is the lowest price we would sell the business for?
2. What timeline do we expect for return proceeds for limited partners?
3. Who are potential buyers? And whom should we be building relationships with?
4. What performance metrics will prospective buyers want to see and how can we show
we are achieving them?

Is the Time Right to Sell My Business?

But even with a “plan for a plan,” selling a business is a complex process requiring business owners to continually make decisions during the sale as they negotiate various stages. If the expected transaction value falls short of your anticipated needs, you could:

1. Explore an alternative transition type that might obtain a higher sale price
2. Postpone the sale of the business and put in place a plan to increase its value
3. Look for opportunities to bring targeted spending in line with the resources the sale nets.

Every family and all businesses are different, and the situation can also change rapidly and unexpectedly, which is why it is best to plan early for the sale of your business with your financial advisor, and annually review your plan.

Jim Bruner, CFP ® , MPAS ® , CPWA ® , CEPA ® , is a financial advisor with UBS Financial Services Inc.(Member FINRA and SIPC)  at 75 280 Highway 111, with over 30 years in the financial services industry. He joined UBS in 2007 and has helped to build a comprehensive wealth management business, serving professionals, entrepreneurs, retirees and their families locally with financial planning at its core. He is also on the board of the Palm Springs International Film Festival and a member of the Childhelp Palm Desert chapter. He has taught corporate finance at Cal State San Bernardino’s Palm Desert location.