You may be at a stage in your life where you’re ready to part ways with your business. Although this can be challenging, scary, and stressful, it can be a huge financial opportunity for you. There are also several pitfalls that can be avoided.
In order to get the most out of selling your business, there are some tools for success you should consider. These steps will help you to prepare for selling your business way before you retire, so you can do it efficiently and successfully.
Time Your Sale Effectively
When it comes to selling a business, timing is critical. Planning way ahead of selling your business is what will get you the best results. You should consider planning this sale at least one year before starting it. Planning even further ahead can benefit you even more.
Being ahead of schedule gives you time to get your business in order, organize your finances, and work toward improving and growing your business. By doing this, you’ll be able to maximize the value of your business when it comes time to sell. As these qualities improve, the value of your business increases.
Organize Your Finances and Documents
An early and continuous step in selling your business is being organized financially. This helps you and any prospective buyer to understand where your business is holistically. Without doing this, a potential buyer might not be able to see the true value of your business.
When you organize your finances, you should ask yourself the following questions:
● Will all my debts be paid off?
● Will there be interruptions in the stream of revenue?
● Will the transition be easy on your customers/clients and your vendors?
● What is my business’s financial position?
On top of getting your finances organized, you should ensure that you have the right documents. There are a lot of documents that are included in the process of selling a business, and you have to ensure they’re all present and up to date. Among other items, you should have your tax returns and financial statements dated back to the last three or four years.
A great way for you to stay on top of your financial documents is by creating a checklist. There is a lot to consider when you’re getting things in order to sell your business, so creating a checklist will help prevent you from overlooking something.
Utilize the Knowledge of Professionals
Although you can gather as many resources as you want online and learn about selling businesses on your own, there’s only so much you can do if you’re inexperienced in this field. It’s important to hire an advisor, or even a team of advisors, who are experienced at selling businesses.
Getting advisors who specialize in different fields can help optimize the perceived value of your business and help in the prevention of costly mistakes. You should consider a tax advisor, estate planning attorney, business broker, colleagues who have sold their own businesses, and personal advisors that may specialize in your field of business.
How Much Is Your Business Worth?
Once you’ve got your finances and documents in order, and you’ve hired a team of professionals, it’s time to answer the big question. How much is your business worth? There are multiple different factors that establish how much your business is worth, and your advisors can help in this evaluation, as well as make it easier for the potential buyer to comprehend.
Consider Your Financial Needs and Goals
When you’re working toward financially evaluating the worth of your business, you need to consider your needs and goals. There are many ways you can sell your business, so it’s up to you to decide which path to take.
These are some things you should determine when you’re preparing to sell your business:
● Do you want to sell it all at once? If you want to retire all together and get a large sum of cash, you can decide to sell your entire business to someone. This means you sign off all rights to your business and you have to walk away from it. Consider an installment sale to defer the tax consequences.
● Do you want to sell a portion of your business? If you want to lose some control of your business, and earn some money, you can sell a portion of your business. This may require some continuous work on your behalf, or you could become a silent partner.
● How much is enough for you? It is likely that you are selling your business to fund your retirement. Will it be enough, though? It is recommended to work with a financial advisor who can project how long this money will last based on your spending, current assets, debt, retirement income (social security), etc. If the sale price can’t fully fund your retirement, you may consider working longer to save more money as well as increase the value of the business. Even though that might not be the answer you wanted, it is much better than the alternative – running out of money!
Succession Planning
Since this is your business, there might be more to consider than just the sale price – the company’s reputation, the company’s values, and the company’s longevity. You may have developed close relationships with long-time customer, clients, vendors, and the community and want this to continue.
Succession planning is a strategy used to transfer leadership roles. This ensures that the business continues to run smoothly, even once it’s sold.
This strategy involves the following:
● Training your employees
● Ensuring they understand the vision of your business
● Making this vision statement understandable for the new owner.
Managing Your Money After the Sale
Once you’ve successfully sold your business, you may be left with excitement, but also uncertainty of how to manage this windfall of money. If you’re planning to fully retire, it’s important to implement a procedure to ensure that it lasts for your lifetime. There can be more to it than just that. You’ve worked very hard to get to this point, so you also want to make sure you have enough to enjoy this part of your life. Spoil yourself! It also may be a priority to leave money to your heirs. There are multiple scenarios to consider, and a financial advisor can determine whether your goals are feasible or not.
In Summary
Selling your business and going into retirement is a big step. The best way to do this is by planning ahead, so you can be truly prepared for what’s to come. This gives you time to improve and work on your business, so you can maximize the dollar value when it comes time to sell.
Remember that hiring advisors is in your best interest. Spending the money for professional advice is not always an easy decision, but the eventual benefits can significantly overshadow these costs.
Written by Eric Keating