When Selling Your Business: A Failure to Plan is a Plan For Failure

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December 9, 2023

Navigating the complexities of selling your business is daunting, especially for those exploring their ‘once in a lifetime’ transaction. If you are considering a transaction in 2024, start preparing now, before the ball drops on New Year’s Eve.

According to a 2023 UBS Investor Watch, which included interviews from business owners who are contemplating a sale and those that recently completed their exit:

  • 61% worry about getting a fair price
  • 40% regret not trying to sell sooner
  • 34% have not identified professional advisors to help
  • 37% do not have an estate plan
  • 31 do not have plans for the proceeds
  • 73% spent less that 2 years planning
  • 81% wish they had spent more time preparing

It is never too early to start preparing!  Here are a few steps to start:

Host a Family Meeting

Selling the family business is never an easy decision, even when it is the right decision.  Hosting a family meeting to discuss this momentous decision can help gain consensus and uncover concerns from other family members.  While typically the decision is concentrated with one or a few key shareholders, soliciting others’ concerns and addressing them early-on will pay dividends down the road, especially if consensus is needed.  

Retain and Reward Your Leadership Team

A continuing strong leadership team is a cornerstone of buyer diligence and critical to most successful transactions. Now is a good time to review or establish management contracts to secure the commitment of key personnel which will provide stability and lower risk for potential buyers. Explore stay bonuses (paid at the closing) and phantom equity options (realized post closing) to align leadership’s long-term interests with the owner’s success of the deal.  

You may consider extending the retention strategy to other important team members to help you get to a successful closing. These incentives serve three purposes: expressing gratitude for getting the business to this point while also rewarding managers for their extra effort during the sale process and ensuring a smooth transition following to the closing.

Safeguard Your Legacy

Preserving your family’s legacy and ensuring financial security are paramount in any transaction. Before the end of the year, owners should engage in proactive estate planning, capitalizing on opportunities such as gifting low basis stock before exemptions expire on December 31, 2025 Working with your private wealth management team, clarify your financial objectives, understand how much you need from the transaction to fulfill both your immediate needs and long-term aspirations and create an estate plan that minimizes taxes.  

Enhance Financial Transparency

Upgrade your accounting practices to align with audit standards. This will provide a strong predictor and a solid foundation for the Quality of Earnings (QofE) analysis, by identifying certain risks, enhance policy and control provisions and help identify certain addbacks and adjustments.  Importantly, I it will smooth the due diligence process when the time comes to share financials with potential suitors.

Craft a Compelling Future Vision

Growth drives value!  No one can understand your business as well as you do, so outline a clear vision of the future and a strategic growth plan.  Most family businesses have a limited appetite for incremental risk and therefore play it safe.  Investors have much more risk tolerance and look to back great teams to execute a clearly articulated vision.   Your plan should address both the risks and the potential rewards, which will be the foundation a future partnership between the management team and investors post closing.

Address low hanging fruit

Every business, no matter how successful, has a number of items that could be considered ‘low hanging fruit’ which, if addressed, will create incremental value.  By addressing these known issues, owners can capture that incremental value, rather than passing that incremental value to the buyer.    Focus on short term addressable items such as implementing a price increase, cleaning up aged receivables, discarding excess or stale inventory, or cleaning up the organization chart and letting less productive employees go.

Review Material Contracts

One of the most overlooked area that can turn into an unwanted surprise prior to the closing is contracts, both with customer and vendors.  While your best customer (or vendor) has been your partner for years, is there a written contract?  When was it last executed?  Can potential buyers be assured that there will be no change post closing?   Owners should take the time to proactively review and update contracts.

Take the Next Step Towards a Successful Business Sale with CMG

The journey to any successful transaction begins with disciplined preparation well in advance. Contact us today to discuss how we can help your family business through this complex process.


About Carter Morse & Goodrich

Located in Southport, Connecticut, Carter Morse & Goodrich is a boutique M&A advisory firm that specializes in representing founder-led and family-held businesses valued between $25 million and $250 million. While CMG provides a full range of investment banking services, our primary focus is representing owners who are pursuing their once-in-a-lifetime M&A transactions. CMG specializes in advising leading companies in niche markets to plan, prepare, execute, and close successful transactions that maximize shareholder value. CMG fully understands and appreciates the unique dynamics of closely-held businesses and the importance of owner legacies. For 35 years, the combination of our hands-on approach, senior banker attention, strategic guidance, seamless transaction execution and extensive network of domestic and international resources has enabled us to become a trusted advisor to hundreds of business owners.

CMG's Broker/Dealer affiliate, Carter Capital Corporation, is a FINRA member firm registered with the SEC and SIPC.

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