Pre-Need vs. At-Need: When Should a Business Owner Start Planning to Sell?
Years ago, a friend of mine who worked in the funeral industry introduced me to two terms I never forgot: “pre-need” and “at-need.”
His role focused on helping families make decisions in advance rather than waiting until circumstances forced those decisions upon them. His point was simple: when something is likely to happen eventually, planning ahead generally provides more options, more time, and an opportunity to make decisions without the pressure of an immediate need.
Over the years, I have thought about how surprisingly well that concept applies to business ownership. I apologize in advance for the analogy BUT it truly did leave an impression upon me…
There is a significant difference between wanting to sell your business someday and reaching the point where you need or are ready to sell your business now.
Most Business Owners Don’t Wake Up Planning Their Exit
The reality is that many small and privately held businesses don’t operate according to a perfectly planned exit strategy.
Business owners are busy running businesses.
They’re dealing with employees, customers, vendors, cash flow, competition, equipment, facilities, regulations and the dozens of unexpected issues that come with ownership. I’ve spent many years on that side of the desk myself, and I understand how easily long-term planning can take a back seat to what needs attention today.
Then, eventually, something changes.
It might be age or retirement. It might be burnout. A health or family circumstance may change priorities. A partner may want out. The owner may receive an unsolicited inquiry. Industry conditions may change. Or perhaps, after many years of ownership, the owner simply reaches the point of saying:
“If the right buyer came along at the right price, I’d be ready.”
That’s often when the conversation about selling begins.
There is nothing inherently wrong with that. Business owners sell under those circumstances every day, and an experienced business intermediary should be capable of working effectively when the timeline is compressed.
But given the choice, I’d rather begin that conversation earlier.
Let’s Talk About Your Next Move…
The Advantage of Being a “Pre-Need” Seller
Suppose you’re reasonably confident that you may want to sell your business three years from now.
You don’t need to sell today. You’re not necessarily looking for buyers. You may not even be certain you’ll sell.
That’s actually an excellent time to begin the conversation.
Why?
Because time creates options.
Some aspects of a business can be improved relatively quickly. Others may take a year, two years or longer to meaningfully develop.
Financial records can be improved. Processes can be documented. Management responsibilities can be delegated. Customer concentration may be reduced. Recurring revenue can potentially be strengthened. Equipment or facility issues can be addressed. Agreements can be documented. Owner dependency may be reduced.
Perhaps most importantly, the owner can begin looking at the business through the eyes of a future buyer.
That’s a very different perspective from simply asking, “How much is my business worth?”
A Valuation Can Be More Than a Number
Business owners understandably want to know what their company is worth.
But I believe a valuation performed well before an intended sale can serve another important purpose.
It can become a planning tool.
Imagine an owner believes the business needs to produce $2 million from an eventual sale to accomplish his or her financial objectives.
What happens if a realistic assessment today suggests the business may be worth considerably less?
Learning that when you need to sell can be disappointing.
Learning it several years beforehand can be actionable.
Instead of debating what the business should be worth, we can begin asking better questions:
What factors are influencing its value today?
Which of those factors can realistically be improved?
What would make this business more attractive to a qualified buyer?
What financial performance would be necessary to support a higher valuation?
What risks might a buyer, lender or advisor identify?
Those conversations can potentially change what happens several years later.
Value Isn’t the Only Issue — Marketability Matters Too
An owner may have a profitable business and still encounter challenges when it comes time to sell.
Buyers aren’t simply purchasing historical earnings. They’re evaluating what they believe will continue after ownership changes.
They may look at the quality of the financial records, customer concentration, employees, management structure, lease terms, contracts, recurring revenue, competitive position, equipment requirements, industry trends and how dependent the company is upon its current owner.
This is why preparing a business for sale isn’t simply about trying to make a valuation number larger.
It’s about creating a business whose value can be understood, supported and defended in the marketplace.
There are really three numbers an owner eventually has to reconcile:
What I believe my business is worth.
What the financial analysis suggests my business is worth.
What a qualified buyer is ultimately willing and able to pay.
The closer those three numbers become, the better positioned an owner may be for a successful transaction.
Let’s Talk About Your Next Move…
Sometimes, However, It Is “At-Need”
We also have to acknowledge reality.
The majority of business owners I encounter aren’t necessarily approaching me several years before they want to sell.
More commonly, circumstances have been building for some time and they reach a point where they say:
“I’m ready.”
They may still be willing to wait for the right buyer and the right price, but they would prefer that buyer arrive sooner rather than later.
That’s okay too.
My preference for advance planning doesn’t mean an owner who wants to sell today has somehow missed the opportunity to do things properly.
It simply changes the assignment.
In a pre-need situation, we may have time to advise, prepare and position.
In an at-need situation, we need to assess, prioritize and execute.
Both require experience, judgment and an understanding of what buyers are likely to see when they examine the business.
Selling a Business Should Be a Process, Not Just an Event
For many owners, their business represents years — sometimes decades — of work.
It may also represent a substantial portion of their personal net worth and retirement plans.
That deserves more than simply deciding on an asking price and looking for someone willing to pay it.
Whenever possible, I prefer to work with business owners well before the transaction becomes necessary. Some of the things that can make a business stronger, more transferable and potentially more valuable simply cannot be created overnight.
But I also understand business owners because I’ve been one.
Plans change. Circumstances change. Priorities change.
Sometimes “someday” unexpectedly becomes “now.”
Whether your timeline is three months, three years, five years or simply someday, there can be tremendous value in understanding where your business stands today and what your options may look like tomorrow.
You don’t have to decide to sell your business in order to begin preparing for the possibility.
In fact, the best time to prepare to sell your business may be when you don’t need to sell it at all.
Thinking About Your Eventual Exit?
If selling your business is somewhere on the horizon — whether sooner, later or you’re simply beginning to think about it — I’m happy to start with a conversation.
No assumption that you’re ready to sell. No pressure to put your business on the market.
Just an opportunity to better understand where you are today, where you’d eventually like to be, and what may need to happen between the two.
Let’s have the conversation before you need to have the conversation.